Budget wonks describe the uncharted territory following a failure to raise the debt ceiling in ominous terms. “It’s so far beyond the range of historical experience,” says Kathy Ruffing, a Senior Fellow at the Center for Budget and Policy Priorities. “We’ve never gotten that far,” says Susan Irving, Director for Federal Budget Analysis at the Government Accountability Office. None of this has budged House Speaker John Boehner, who, intent on holding the full faith and credit of the United States of America subject to concessions from the president, said yesterday that he might not even hold a vote “if the president doesn’t get serious about the need to address our fiscal nightmare.”
There are “extraordinary measures” that Treasury Secretary Timothy Geithner can take in order to prevent the U.S. from defaulting. Some of these are so extraordinary that they require Geithner to declare a “debt issuance suspension period” before taking them. In the past, other Treasury secretaries have taken similar actions, but some methods are no longer available, and others aren’t as effective as they once were. Weeks ago Geithner warned Congress that because the federal debt is increasing at such a fast clip — to the tune of $125 billion per month — these extraordinary actions don’t pack the punch they used to, giving the government only about two months before plummeting into default. Below is a detailed list of the extraordinary measures Geithner can take to keep the government’s head above water. None of them are actions Treasury wants to take, and the closer to the deadline we get without raising the debt ceiling, the more spooked the markets get.
| Action |
Why it’s Extraordinary |
$$$ |
| Exchanging one kind of debt for another |
The Federal Financing Bank is a government corporation that borrows from the Treasury and finances other agencies’ debt. Theoretically, because FFB securities are not counted towards the debt limit, exchanging them for other securities that do would free up some space under the debt limit. But the process is complicated, and at the moment wouldn’t help much. |
$4-5 billion |
| Stop investing for a rainy day. |
The government maintains Exchange Stabilization Fund investments for the kind of rainy day when another country’s currency goes belly-up. (This allows the U.S. to intervene in such an incident without affecting domestic money supply.) Suspending these investments gives them space under the debt limit, but it doesn’t amount to much. |
|
| Borrow from civil servants’ retirements |
This option allows Geithner to temporarily borrow money from the government version of a 401k retirement plan offered to Federal employees. “When the treasury hits against the debt limit, treasury can stop investing in the [fund] and then make it them to them later,” Ruffing explains. The Treasury is legally obligated to keep separate books that calculate how much interest would have accrued otherwise, so federal workers aren’t being bilked out of their retirement benefits. |
$130 billion |
| Stop contributing to the civil servants pension plan |
Federal employees have a defined pension plan separate from the voluntary 401k-like contributions they can make. The federal government regularly contributes to the fund, known as the Civil Service Retirement and Disability Fund. A second set of books are kept to ensure that federal employees aren’t losing out on the interest that would otherwise accrue. |
$2 billion per month |
| Actually withdrawing money from the pension savings accounts |
In addition to suspending contributions from the retirement and disability fund, Treasury can actually borrow money that has already been contributed. How much money Geithner can get depends on the length of the emergency, but it can’t last forever. Geithner has eventually has to give the money back to pay benefits. “It doesn’t buy you even a whole month,” Irving says. |
$6 billion per month |
| The June 30 Option |
The statute that allows Geither to pull out existing investments from the fund also allows him the one-time option, on June 30, of using interest on investments that have matured towards preventing the U.S. from reaching the debt limit. |
$55 billion |
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