US Public Debt Limit Reached

The AP reports Debt limit reached, US halts 2 pension investments:

Treasury Secretary Timothy Geithner said Monday that he will immediately halt investments in two big government pension plans so the government can continue to borrow money.

Geithner informed Congress of his decision in a letter stating that the government had officially reached its $14.3 trillion borrowing limit. He repeated a warning that if lawmakers do not increase the borrowing limit by August 2, the government is at risk of an unprecedented default on its debt.

The debt limit is the amount of money the government can borrow to help finance its operations. The nation has reached its debt limit because the federal government has grown accustomed to borrowing massive amounts of money. The latest estimate is that it borrows 40 cents for every dollar it spends.

Republicans have said they will not vote to raise the borrowing limit until Congress and the White House agree on a plan to reduce the deficit through spending cuts. House Speaker John Boehner last week those cuts should be larger than any increase in the debt ceiling.

The deficit is the difference between what the government spends and what it takes in through taxes and other revenue. The Congressional Budget Office projects that this year’s deficit will total $1.4 trillion. That’s would nearly match 2009’s record imbalance and mark the third straight year in which the federal deficit has exceeded $1 trillion.

Vice President Joe Biden is holding negotiations with lawmakers over the types of deficit-cutting measures that need to be approved to win congressional approval of a higher debt limit.

Even though the government has reached its official borrowing limit, Geithner said unexpected revenue and bookkeeping maneuvers will allow the Treasury to continue auctioning debt for another 11 weeks.

Geithner has suspended pension payments in the past when Congress has held off raising the debt limit. The money that the two pension funds will lose will be replaced when Congress votes to raise the borrowing limit.

I’ve mentioned this before, but I still love that great logic behind threatening to vote not to raise the debt limit unless “significant cuts” are agreed upon. If significant cuts were to take place, there would be no need to raise the debt ceiling in the first place! :)

Another nice example for good old political hypocrisy is on this matter is of course Obama vs Obama on Raising the Debt ceiling.

All the threats about the US potentially defaulting in its national debt are rather unimpressive to me and the bond market is once again shrugging it off today with a drop of another 3 BP to currently 3.15 percent as these lines are written.

The US government is not going to default on its public debt, at least not before defaulting on virtually everything else as I outlined in The Government’s Insolvency.

The pension plans that payments have been suspended into (Service Retirement and Disability Fund) might give you a nice little snapshot as to who’s a low on the totem pole in terms of the seniority order I mentioned in that post.


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