American Sauce: Debt Ceiling Limbo
May 23rd, 2011
03:17 PM ET
3 years ago

American Sauce: Debt Ceiling Limbo

Capitol Hill (CNN) – How exactly is the Treasury Department keeping the U.S. going, after the country has hit the national debt limit? A debt limit means no additional net borrowing - at a time when the federal government pays roughly 40% of its bills precisely through borrowing.

Treasury Secretary Tim Geithner calls the answer "extraordinary measures". Financial juggling is another way to say it.

This week, American Sauce lays out exactly what the Treasury is doing to limbo under the debt limit and buy Congress about two months of time to find an answer.

Comment below. Listen here:


Or keep reading for the bullet points in print:

Extraordinary Measures

- SLGS: Policy folks call them "slugs". You should too. It's cool. These are debt instruments that the federal government sells to State and Local Governments. (SLGS)

Suspending them is one of the first things Treasury does when nearing the debt ceiling, but it does not give the federal government more buying power. Instead, this freezes an unpredictable debt measure (states put money in and out as they need, not in predetermined amounts). Freezing SLGS gives the Treasury a more stable sense of cash flow.

On the down side, this temporarily halts a program that states and local governments use to help manage their own debt.

- Federal Retirement Funds: This is the biggie. Treasury can temporarily manipulate two large retirement funds for federal employees in order to stay under the debt ceiling. (For super wonks, they are the Civil Service Retirement and Disability Fund, an older, more traditional pension plan, and the G-Fund, a voluntary 401K-type program.)

What does Treasury do with these?

Simplistic version: Treasury stops selling debt to these retirement funds (the funds buy the debt as an investment). But, this is temporary. Treasury must later repay the precise interest those funds would have made otherwise.

- Exchange Stabilization Fund: Here's one to bring up at a party. (A party for big-time money nerds.) The U.S. has a reserve fund, called the Exchange Stabilization Fund, that it keeps handy to make payments in or buy foreign currencies. The idea is to keep a reserve in case of unpredictable fluctuations in currency values.

That money is invested in U.S. debt, the same concept as the retirement funds. To get some more headroom under the debt ceiling, Sec. Geithner can freeze those investments, thereby bringing down the amount of U.S. debt out there.

One difference, just in case you really do bring this up at a meeting of the "Financial Minutia Club", is that Treasury does not have to repay the interest the ESF would lose. The fund simply takes the hit in lost interest.

- Federal Finance Bank: We'll cut to the chase – this has been an option in the past, but is not a significant factor this time around.

The Federal Finance Bank can loan money between agencies. But here's it's superpower: it can issue up to $15 Billion in debt that is not subject to the national debt limit. But which the Treasury can use.

However, much of that $15 Billion ability has been used up. There is not a significant amount remaining (somewhere around $4 Billion) and using it is not simple.

Comment below.

What do you think of these things Treasury is doing? This financial contortion to stay under the debt limit (by the slimmest amounts)?

Listen to the podcast here.

It also includes a rare look at the small group of people who actually calculate the national debt to the penny. And whose lives are hell right now.

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You can also listen to American Sauce on iTunes, Stitcher or subscribe to the podcast via RSS.


Filed under: American Sauce • Debt • Tim Geithner
soundoff (20 Responses)
  1. Dominican mama 4 Obama

    Speaking of the Boo-Hoo of the House: were you able to explain to the graduating class of Catholic University during your commencement address where are the non-existent jobs that you promised they'd have back in November 2010?
    I saw that in what's become your "signature" you broke down and cried at their commencement, was that out of shame or did someone throw a shoe at you?!

    May 23, 2011 03:23 pm at 3:23 pm |
  2. Rudy NYC

    I have no problem with reducing the deficit by any means necessary.
    But, I do have a problem with not paying our bills on time.
    What the GOTP is doing is unreasonable.

    May 23, 2011 03:29 pm at 3:29 pm |
  3. HAD ENOUGH? 9% unemployment, massive foreclosures, $4-5/gal gas, $1.7 TRILLION deficits, $14 TRILLION debt, Obamacare, Libyan war, unsecure borders, illegal alien invasion, alienated allies, embolden enemies

    No need to limbo if YOU STOP SPENDING WHAT YOU DON'T HAVE!!! What do the simpleton Democrats not understand about this?

    May 23, 2011 03:47 pm at 3:47 pm |
  4. HAD ENOUGH? 9% unemployment, massive foreclosures, $4-5/gal gas, $1.7 TRILLION deficits, $14 TRILLION debt, Obamacare, Libyan war, unsecure borders, illegal alien invasion, alienated allies, embolden enemies

    where are the non-existent jobs
    ==========================
    In the same place the non-existant jobs are from the trillion dollar "porkulus" plan! Crazy liberals think printing money and throwing it in the sky creates real jobs....

    May 23, 2011 03:52 pm at 3:52 pm |
  5. juliei4

    The GOP better stop their threats on raising the debt ceiling because the markets are getting shaky and at our age we cannot afford another several years for our IRAs to recover. Guess where we will be then Mr. Boehner – looking for a government handout even though we have prepared as much as we can for retirement. There are a lot of us heading for retirement – you better do all you can to shore things up. It will be the GOP's fault if the economy crashes again – oh – I forgot – it was their fault last time.

    May 23, 2011 03:53 pm at 3:53 pm |
  6. Four and The Door

    If the Democrats will not agree to spending cuts, what's the point of raising the debt limit? We got better than this from our ancestors and our future generations deserve better than this from us. Cut spending. If reaching a debt limit isn't a good enough indicator then what good is it? What will it take for Democrats to get serious about financial responsibility? Did they not get the message in November?

    May 23, 2011 04:01 pm at 4:01 pm |
  7. Squigman

    Here's a post for you. Not even with a .45, pressed against my temple, leaving an impression, would I vote for a republican. This has got to be the party of people that spell accident with an x.

    May 23, 2011 04:03 pm at 4:03 pm |
  8. PALINHOPE

    No raise in the defit ceiling. If we're to bankrupt then bankrupt we must. let's get in on now. Don't wait until this idiot in the White House loads more debt on. Whats he spent now over 6 trillion dollars? You can't blame Bush for this. This is Obama's and Obama's alone. He salvaged the banks and car mfg's. but creatred no jobs. SO WHE DID HE DO IT. NOW HE GIVES MONEY TO PAKISTAN, PALISTINE TO KEEP THEIR GOVERNMENTS AFLOAT. WHAT IS THE MATTER WITH THIS GUY IS HE RETARDED

    May 23, 2011 04:06 pm at 4:06 pm |
  9. Nelson Colorado Springs Co.

    They look like the Three Stooges

    May 23, 2011 04:11 pm at 4:11 pm |
  10. Ariel

    Anyone who thinks not paying our debts is okay is crazy if that happens like a credit card our interest goes up and a rate hike on 14 Trillion is far more expensive then the extra headroom would be.

    No one not even the GOP is that stupid.

    May 23, 2011 04:13 pm at 4:13 pm |
  11. B

    Now the Government is in tune with most Americans, borrowing to pay for everything, but remember, that we are number one, right?

    We are still attempting to watch over the hole damn world and we are as broke as we can get !

    We are living in La La land.

    May 23, 2011 04:13 pm at 4:13 pm |
  12. Ariel

    Anyone who thinks not paying our debts is okay is crazy if that happens like a credit card our interest goes up and a rate hike on 14 Trillion is far more expensive then the extra headroom would be.

    No one not even the G O P is that dense

    May 23, 2011 04:15 pm at 4:15 pm |
  13. gt

    moe...larry ..and curley... get your act together

    May 23, 2011 04:16 pm at 4:16 pm |
  14. HAD ENOUGH? 9% unemployment, massive foreclosures, $4-5/gal gas, $1.7 TRILLION deficits, $14 TRILLION debt, Obamacare, Libyan war, unsecure borders, illegal alien invasion, alienated allies, embolden enemies

    So when we run up 20, 30 40 TRILLION in debt, will we stop the madness then??? How much is enough to borrow until we are declared bankrupt and the financial system collapses??? The Democrats will never come clean on how much they want to borrow, how much they want to tax, how much they want to spend, how much they want to cut (actually they have, ZERO) in order to maintain the great welfare society they have created.

    If this is theonly way to stop the madness, then let's stop the madness NOW and maybe, just maybe, our children and great grand children will have a fighting chance of having a country left.

    May 23, 2011 04:18 pm at 4:18 pm |
  15. Sniffit

    "If the Democrats will not agree to spending cuts, what's the point of raising the debt limit? "

    That's precisely the kind of know-nothing, uninformed, trite response upon which the GOP depends on a daily basis. What the point? First, spending being what it is doesn't crash the entire world economy...no matter how hard the GOP tries to come up with some crazy explanation as to why it does. Second, the Dems are quite qilling to cut spending...just not eviscerate programs like Medicare and Social Security so the ultra-wealthy can continue to have unnecessary tax cuts, corporations can continue to enjoy loopholes and deductions that bring their effective tax rate to ZERO and giant industries like Big Oil can continue to suck the middle-class dry with subsidies they CLEARLY DO NOT NEED. Lastly, the devastation to the US credit rating and world economy from a US default is pretty much universally agreed upon by economists as a sure thing. I know the GOP likes to cite a couple of their little buddies and that ONE hedge fund manager the WSJ quoted for the proposition that a default of a couple days or even months would be no big deal...Ryan and Toomey took that ONE person's opinion as gospel (and note that he's a hedge fund manager) and are spewing it non-stop...but it's just not true. The greater consensus is against that daydream fantasy talk. If the GOP wants to test it's theory that defaulting on our debts by failing to raise the debt ceiling won't be a big deal, then I suggest they do just that: WE DARE THEM TO. Have fun trying to pick up the pieces after they nuke us with that kind of irresponsible ideologically-motivated nonsense (but trust me, they don't have the b-lls).

    May 23, 2011 04:18 pm at 4:18 pm |
  16. Sniffit

    GOP is doing this for one reason and one reason alone, because they certainly don't have the backbone to follow it through: to create instability and uncertainty in the economy by hanging the Sword of Damocles over everyone's heads. Threatening to not raise the debt ceiling? Who's going to go whole hog trying to participate in the market and ramp up hiring or expand their business while the GOP is threatening to tank the entire nation's credit rating, destroy the bond market and potentially ruin our currency? What could possibly give the GOP a bigger Boehner than keeping the economy disturbed, unstable, uncertain, etc., while Obama is in the WH? Everyone "knows" the GOP can't possibly follow through on the threat...it would blow us up...economic terrorism from within...but yuo can't be 100% certain and rely on common sense when you're dealing with a gaggle of angry, irrational, power-hungry corporate puppets whose constituency is wilfully ignorant and frequently bigotted. No good news on the job front in June and July? Thank your local GOPer.

    May 23, 2011 04:24 pm at 4:24 pm |
  17. Hammerer

    Where IS Obama?
    Rome is burning!

    May 23, 2011 04:25 pm at 4:25 pm |
  18. Sniffit

    "NOW HE GIVES MONEY TO PAKISTAN, PALISTINE TO KEEP THEIR GOVERNMENTS AFLOAT."

    You do realize that we've been doing that for years and years, don't you? Oh who am I kidding. You people live in bubbles.

    May 23, 2011 04:29 pm at 4:29 pm |
  19. Rudy NYC

    HAD ENOUGH wrote:
    In the same place the non-existant jobs are from the trillion dollar "porkulus" plan!
    -------------------------–
    You don't know how the Stimulus money was spent do you? Allow me to refresh your memory. The Stimulus was a product of the public outcry over TARP. "You helped Wall Street, but what about Main Street?" The Democrats had a package with money for public works, infrastructure, and assistance to states facing deficits.

    The Republicans objected to the content (but not the idea because it was an opportunity, you see) of the bill. They had pointed out that the $650B package contained no real assistance for "Main Street". So, they modified the package by reducing the "shovel ready" projects, and adding assistance to banks to encourage lending to small businesses. The final cost of the package was now over $750B.

    The banks got their hands on the money. They repaid TARP. They invested overseas. They did most everything but loan to small businesses on Main Street. Meanwhile, the Republicans declared the Stimulus a failure. It was the greatest con job of all time.

    May 23, 2011 04:31 pm at 4:31 pm |
  20. Four and The Door

    Sniffit
    What the point? First, spending being what it is doesn't crash the entire world economy...no matter how hard the GOP tries to come up with some crazy explanation as to why it does.
    ___________________________________________________________________________________________________
    You are okay with increasing the national debt by 40% in 2 years? Obama, Harry Reid and the rest of the Washington Democratic Political Spending Machine appreciate your support. Our kids don't. They will need to work very hard to pay off this level of debt. Here's your gift from Grandpa Sniffit: 50% of your pay going to China just to pay interest.

    May 23, 2011 04:44 pm at 4:44 pm |