WASHINGTON — The U.S. Treasury will hit the statutory federal debt ceiling on Monday when its three-year and 10-year notes settle.
Treasury Secretary Timothy Geithner warned Congress early in April that May 16 would be the date the government would hit the $14.294 trillion debt limit.
The Treasury Department auctioned $32 billion of three-year notes Tuesday and $24 billion of 10-year notes Wednesday. There was also a $16 billion 30-year bond auction Thursday.
While the Treasury will hit the legal debt ceiling on Monday, that does not mean it will have to stop spending money, in particular to pay interest on the outstanding securities.
An unexpected tax windfall in April has provided an extra cash cushion, according to the Treasury. And Geithner has already announced the first of a now-standard series of financial maneuvers to hold off the “drop-dead day” when the government can truly spend no more money.
That first move, on May 6, was to suspend the sale of state and local governments series securities. Municipal issuers buy them for advance refunding escrows so they can avoid earning arbitrage.
Unless Congress raises the debt ceiling first, the SLGS suspension is likely to be followed by borrowing from federal employee pension funds and other now-standard measures.
The conservative House Republican Study Committee sent a letter to Geithner on Thursday, saying that Congress needs “a more complete and thorough understanding of the timing and mechanics surrounding the Treasury’s management of federal finances to prevent exceeding the nation’s borrowing capacity.”
Lawmakers, particularly Republicans, are demanding the Obama administration agree to significant spending cuts in return for Congress’ increasing the debt ceiling. But at a Senate Finance committee hearing today, Federal Reserve Board chairman Ben Bernanke warned that “I think using the debt limit as a bargaining chip is quite risky.”
Republican leaders have been reassuring worried Wall Street executives that they will not let the United States default on its debt.
