Tim Geithner Releases Latest Mutual Assured Destruction Threat: Says "Debt Ceiling To Be Breached No Later Than May 16"

Tyler Durden's picture

Anyone remember the scaremongering tactics used by the kleptocracy when TARP was passed and when the Fed tried to hide its discount window borrowings (oh yes, the market really plunged on Thursday)? If not, here is a reminder, courtesy of a letter just released by the boy who not only cried wolf on so many different occasions, but continues to do so today: "The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations. If Congress does not act by May 16, I will take all measures available to me to give Congress additional time to act and to protect the creditworthiness of the country....Defaulting on legal obligations of the United States would lead to sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans. Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover....defaulting on legal obligations of the United States would lead to sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans. Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover. Nor is it possible to avoid raising the debt limit by cutting spending or raising taxes. Because of the magnitude of past commitments by Congress, immediate cuts in spending or tax increases cannot make the necessary cash available. In order to avoid an increase in the debt limit, Congress would need to eliminate annual deficits immediately. " We are now, thusly, screwed.

From a letter just released by Tim Geithner to Congress  (pdf)

Secretary Geithner Sends Debt Limit Letter to Congress

April 4, 2011

 

The Honorable Harry Reid
Democratic Leader

United States Senate

Washington, DC 20510

Dear Mr. Leader:

I am writing to update you on the Treasury Department’s projections
regarding when the statutory debt limit will be reached and to inform
you about the limits of the available measures at our disposal to delay
that date temporarily.

In our previous communications to Congress, we provided regular
estimates of the likely time period in which the debt limit could be
reached. We can now make that projection with more precision. The
Treasury Department now projects that the debt limit will be reached no
later than May 16, 2011. This is a projection based on the expected
level of tax receipts, the timing of our commitments and obligations
over the next several weeks, and our judgment concerning the level of
cash balances we need to operate. Although these projections could
change, we do not believe they are likely to change in a way that would
give Congress more time in which to act. Treasury will provide an
update of this projection in early May.

If the debt limit is not increased by May 16, the Treasury Department
has authority to take certain extraordinary measures, described in
detail in the appendix, to temporarily postpone the date that the United
States would otherwise default on its obligations. These actions,
which have been employed during previous debt limit impasses, would be
exhausted after approximately eight weeks, meaning no headroom to borrow
within the limit would be available after about July 8, 2011
. At that
point the Treasury would have no remaining borrowing authority, and the
available cash balances would be inadequate for us to operate with a
sufficient margin to meet our commitments securely.

As Secretary of the Treasury, I would prefer to avoid resorting to these
extraordinary measures. The longer Congress fails to act, the more we
risk that investors here and around the world will lose confidence in
our ability to meet our commitments and our obligations.

If Congress does not act by May 16, I will take all measures available
to me to give Congress additional time to act and to protect the
creditworthiness of the country
. These measures, however, only provide a
limited degree of flexibility—much less flexibility than when our
deficits were smaller.

As the leaders of both parties in both houses of Congress have
recognized, increasing the limit is necessary to allow the United States
to meet obligations that have been previously authorized and
appropriated by Congress. Increasing the limit does not increase the
obligations we have as a Nation; it simply permits the Treasury to fund
those obligations that Congress has already established.

If Congress failed to increase the debt limit, a broad range of
government payments would have to be stopped, limited or delayed,
including military salaries and retirement benefits, Social Security and
Medicare payments, interest on the debt, unemployment benefits and tax
refunds
. This would cause severe hardship to American families and
raise questions about our ability to defend our national security
interests. In addition, defaulting on legal obligations of the United
States would lead to sharply higher interest rates and borrowing costs,
declining home values and reduced retirement savings for Americans.
Default would cause a financial crisis potentially more severe than the
crisis from which we are only now starting to recover
.

For these reasons, default by the United States is unthinkable. This is
not a new or partisan judgment; it is a conclusion that has been shared
by every Secretary of the Treasury, regardless of political party, in
the modern era.

Treasury has been asked whether it would be possible for the Treasury to
sell financial assets as a way to avoid or delay congressional action
to raise the debt limit
. This is not a viable option. To attempt a
“fire sale” of financial assets in an effort to buy time for Congress to
act would be damaging to financial markets and the economy and would
undermine confidence in the United States.

Selling the Nation’s gold, for example, would undercut confidence in the
United States both here and abroad. A rush to sell other financial
assets, such as the remaining financial investments from the Emergency
Economic Stabilization Act programs, would impose losses on American
taxpayers and risk damaging the value of similar assets held by private
investors without generating sufficient revenue to make an appreciable
difference in when the debt limit must be raised. Likewise, for both
legal and practical reasons, it is not feasible to sell the government’s
portfolio of student loans.

Nor is it possible to avoid raising the debt limit by cutting spending
or raising taxes. Because of the magnitude of past commitments by
Congress, immediate cuts in spending or tax increases cannot make the
necessary cash available
. And, reductions in future spending
commitments cannot supply the short-term cash needed. In order to avoid
an increase in the debt limit, Congress would need to eliminate annual
deficits immediately.

As the Congressional Research Service stated in its February 11, 2011 report:

“If the debt limit is reached and Treasury is no longer able to issue
federal debt, federal spending would have to be decreased or federal
revenues would have to be increased by a corresponding amount to cover
the gap in what cannot be borrowed. To put this into context, the
federal government would have to eliminate all spending on discretionary
programs, cut nearly 70% of outlays for mandatory programs, increase
revenue collection by nearly two-thirds, or take some combination of
those actions in the second half of FY2011 (April through September 30,
2011) in order to avoid increasing the debt limit. Additional spending
cuts and/or revenue increases would be required, under current policy,
in FY2012 and beyond to avoid increasing the debt limit.” [1]

None of those budget policy choices is feasible or responsible. As a
consequence, given that Congress has imposed on itself the requirement
for periodic increases, there is no alternative to enactment of an
increase in the debt limit.

I am encouraged that the leaders of both parties in both houses of
Congress have clearly stated in public over the last few weeks and
months that we cannot default on our obligations as a nation and
therefore have to increase the debt limit. Because the date by which we
need to increase the limit is growing nearer, I hope that the
leadership in both houses will help us impress upon all Members the
gravity of this issue and the imperative of timely action.

President Obama is strongly committed to working with both parties to
restore fiscal responsibility, and he looks forward to working with
Congress to achieve that critically important objective. In the
meantime, it is critical that Congress act to increase the debt limit so
that the full faith and credit of the United States is protected.

I hope this information is helpful as you plan the legislative schedule for the coming weeks.

Sincerely,

Timothy F. Geithner

Identical letter sent to:

The Honorable John A. Boehner, Speaker of the House

The Honorable Nancy Pelosi, House Democratic Leader

The Honorable Mitch McConnell, Senate Republican Leader

cc:

The Honorable Dave Camp, Chairman, House Committee on Ways and Means

The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and Means

The Honorable Max Baucus, Chairman, Senate Committee on Finance
The Honorable Orrin Hatch, Ranking Member, Senate Committee on Finance
All other Members of the 112th Congress


Enclosure

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Hard1's picture

Debt Ceiling…What debt ceiling? asks Timmey?  Ben answers, those idiots at the hill think that there is a limit to the amount of those pieces of paper that you like to print and I happen to buy with other pieces of paper that I like to print…..ahh answers Timmey   there seemed nothing wrong with our pissing contest of who has the fastest printer in the world.  (So far there was a tie between elves and men at around $60 billion per second).  Oh and by the way,  asks the dumb elf.  How can they enforce trying to stop a train running at 250 mph that is 10 inches from crashing against an imaginary wall?  I don’t think they can do that answers Benny.  OK, I'll send them a letter. By the way seems like we tie again this week, I bought everything that you printed with my weekly output. Wanna wager another $20 for next week?

Ego can procer ocius quam vos can repute. I can print faster than you can think.   (Ben S. Bernanke  circa 2011)  

slaughterer's picture

It's like the only game Timmy knows is taken directly from page 1 of the Hank Paulson playbook.  

Highrev's picture

President Obama is strongly committed to working with both parties to restore fiscal responsibility, and he looks forward to working with Congress to . . .

. . . keep kicking the can in "the meantime".

zaphod's picture

"unless the deficit is eliminated"

 

That's really the only thing that matters and you just said it Timmy.

If we don't raise the debt ceiling the US will not default, it just means that the government will only spend what it takes in. Considering that tax receipts are still well north of $2Tillion, they have real balls to complain.

Popo's picture

Is there even a difference to America's image between defaulting and "taking on new debt to pay old debts"?    Both actions signify an inability to pay back debt.

One action accepts responsibility for our insolvency now, the other forces our insolvency onto our children.

 

Faced with the option of accepting financial responsibility today, or forcing debt onto our children -- Geithner is choosing to screw over our kids.  How on earth is that a defensible position? 

 

 

whatsinaname's picture

Will Tim refuse to pay Ben "interest" on his treasury "holdings" ?

Will Tim give Ben an IOU instead ?

Hard1's picture

Oh, I almost forgot. This is definitively bullish news for every asset.  BTFD bitchezzz!!

malikai's picture

What dip? Default is obviously the most bullish thing ever.

myTPisUSD's picture

S&P to rally was what I came away with

TradingJoe's picture

yeah, good old turbo timmah!

tek77blu's picture

Timmy will do nothing more than raise the price ceiling for gold and silver going forward: http://www.youtube.com/watch?v=zk3z-JUKp3k

Hephasteus's picture

April is going to gang rape the dollar. If it comes out of april over 72 it will be a frikkin miracle.

Yahoo is putting up plenty of Things that won't fly with the IRS stories and crap like that.

Everything that can be learned about horrilbe behavior is learned while slaves are attempting to run away from masters. When people attempt to fire thier government.

"This is a projection based on the expected level of tax receipts, the timing of our commitments and obligations over the next several weeks,"

There's no tax receipts. LOL

naughtius maximus's picture

Wouldn't the government defaulting on debt be massively deflationary? And all those seniors not getting paid.. All that money gone. Prices have to go down until people can afford them. Broke people cannot afford much.

I'm keeping my dollars until CONgress gets the brilliant idea that they can print all the money it needs to fund the monster government we have.

Then all this zimbabwae talk will become relevant and serious actual real life stuff.

fuu's picture

"I'm keeping my dollars until CONgress gets the brilliant idea that they can print all the money it needs to fund the monster government we have."

 

let's just skip over the part where you are coming late to the party and just embrace the fact you showed up.

Snidley Whipsnae's picture

"And all those seniors not getting paid.. All that money gone. Prices have to go down until people can afford them."

Hello, Americans are not the only people on earth. In fact, Americans are a very small per centage of the people on earth. Commodities go to the highest bidder... regardless of their address.

"Actual real life stuff" is whats going to happen to you while you using faulty logic.

Rahm's picture

Timmah is the definition of a piece of $h!t

myTPisUSD's picture

+1...some people are just shitty people, others are pieces of shit

GOSPLAN HERO's picture

Print like four mofos.

Cash_is_Trash's picture

Well their intention to destroy the currency can't be clearer than that.

This man is real sack of shit, him and the cronies on the Hill which will raise the limit.

The German Chairman's picture

Projections of Doom serve the Oligarchy! No doubt, a sudden collapse of the global financial system is POSSIBLE. All fiat may be worthless within days/weeks, shops empty, communications and energy off, unprecedented chaos globally. But I think the probability of such a thing to happen is way, WAY lower than most ZH-readers think. Why? Because today's worldwide oligarchy (the FED is its center) is in public crosshairs. Too many people know structures, names and faces of the oligarchy. If 'they' let the system collapse abruptly = erase all monetary assets/savings = leave millions/billions of people starving within months, 'they' would be just dead. DEAD. And their death will be an unpleasant one.

 

But - We are talking about the greatest concentration of power the planet has ever seen. 'They' own decisive pieces of all finance, agriculture, defense, energy, communications, media and last not least, 'they' control most governments and dictatorships. I doubt 'they' are careless enough to let it happen and expose themselves to such a tremendous risk. The most probable outlook for the future is that everything will steadily get worse. Up to which point? There is no such point. For instance food-stamps. Imagine a time when there were 'only' one million US-citizens depending on food stamps. Everybody would have said: If the figure - gasp - doubles, we have a revolution, society will collapse. How many people depend on food-stamps today? Aren't it some tens of millions? If 30 million is possible, then 60million is possible, too. And if 60million is possible, then 1/2 of US population is possible, too. It just depends on the timeframe in which this unfolds and its steadiness.

 

And why shall the population accept such a development and live their lives in such an obvious nightmare? Because from a day-to-day view, almost everything is better than sudden collapse. And the more we project this sudden collapse in our minds, the easier it is for the oligarchy to impose their will on us. Hm, what about us, the small, critical, intellectual crowd; we accumulated considerable quantities of physical PMs because we think this is an über-weapon/shield against 'them'? I think 'they' will have some candy for us which we cannot resist and which makes us accept whatever 'they' intend. They will know how to pull their most serious critics on their side - and the looting of the world can go on.

sschu's picture

You may be correct, boil the frogs slowly as they say.

When I speak to people about the crisis we face, the invariable response is about the stock market.  How can all this be true and how can the market be up so much given the doomsday scenario you paint?  If you start down the path of market manipulation, then these people tune out, they just do not want to hear it.

As long as the market does not go down, the people will watch their 401Ks and decide that all cannot be that bad.  Bennie etal know this and they will spend a bundle to keep it that way.

sschu 

Crack-up Boom's picture

Even worse - I've tried to explain the potential for inflation, only to be told that, if prices rise, our slaries will have to rise, too, so there won't be any real difference!  It can be really hard to break through the normalcy bias. 

James's picture

For the record, 44.5 + MILLION are on food stamps today.

MisterAmbassador's picture

I agree with your premise and logic, but wasn't the system completely collapsing in September 2008?  Wouldn't they have wanted it to be less apparent?  These people have great arrogance.  They believe they can perfectly predict and control everything.  They cannot fathom that computers can quickly collapse the system as things cascade faster than they can possibly think, let alone react.  That arrogance is all it takes for an uncontrolled collapse.  The government was able to guarantee the banks and stop $5.5 trillion from being withdrawn from the system.  Who guarantees the government, though?  Rev up the presses? Sure.  But, sovereign holders of our debt will see through that and SELL!  SELL!  SELL!, if not declare war.

SwingForce's picture

What a liar, worse than I thought.

Homey Da Clown's picture

"President Obama is strongly committed to working with both parties to restore fiscal responsibility"

 

HO  HO HO HA HA HA. Thanks Timmy. I needed that one.  Didn't he send Joe "Stand Up Chuck" Biden to deal with the budget for one day, while he left town for Rio?Hubris indeed.

DosZap's picture

I haven't seen him work,or be committed  on anything except his Golf game.

He allows Satans minions to do the dirty work, whilst he's vacationing with the Fam.

Ah...........................the Good Life.

The Chi Town Way.

Anonymouse's picture

A few statements to this effect placed throughout the media, and voila, all economic problems are the fault of the GOP.  "The recovery was moving along nicely, unemployment coming down, business confidence on the rise.  But then, the extremists in the GOP shutdown the government and the economy went back off the rails."  This is all positioning for 2012.  Problem is, it probably will work.

Founders Keeper's picture

[A few statements to this effect placed throughout the media, and voila...]---Anonymouse

Good observations, Anonymouse.

Dems kick the 2011 Budget can down the road for the Reps to wrestle with at about the same time the Debt Ceiling comes due. Then, in the interim, announce ginned up GDP numbers and sub 9% NFP numbers.

Both parties spend countless hours, day and night, plotting and wringing their dirty hands over this kind of non-sense, while the work of the nation waits.

Maniacal brilliance of political monsters.

Dems & Reps alike, shameful. SSDD. We all lose.  

 

Midwest Prepper's picture

Isn't Timothy Geithner the guy who is incapable of doing his own taxes with Turbotax?  Why should we listen to him on this?  There is only one way to find out what would happen.... Let's default and see who gives in first...

Your Mama's picture

Bring it on...need to shake up the markets, to frickin boring these days

bob_dabolina's picture

We should all listen to a guy who couldn't properly pay his taxes because turbo tax was too complicated.

malikai's picture

Hiding all the crooked cash he's got probably is too complicated. He should have banked at Wachovia. They've obviously got experience in these matters.

http://www.guardian.co.uk/world/2011/apr/03/us-bank-mexico-drug-gangs

Lord Welligton's picture

"Defaulting on legal obligations of the United States would lead to sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans."

Same argument the world over.

Borrow more or we will destroy your country.

I say. Bring it on.

youngman's picture

"lose confidence in our ability to meet our commitments and our obligations"

Timmy...to me that would be paying your bills with the money you make....NOT MONEY YOU BORROW OR PRINT...what an idiot.......this joke is not longer funny...

How come I have this funny feeling those foreign banks that got all the bailout money...have a lot of Politicians and Timmy´s accounts...well stocked with cash right now...probably changed it over to gold

disabledvet's picture

even better:  "we won't pay the soldiers."  right up with "the white preacher in Florida did it."

hedgeless_horseman's picture

Defaulting on legal obligations of the United States would lead to ... declining home values and reduced retirement savings for Americans.

I think Turbo Tax Tim has this backwards. 

Here is the truth: 

Incurring excessive obligations of the United States has lead to declining home values and reduced retirement savings for Americans.

 

DosZap's picture

Flashbacks have a way of reversing the truth.

Astute Investor's picture

"The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations...."

 

Someone should tell TG that the only "investor" that matters these days is BB & Co.

TruthInSunshine's picture

When Americans divorce themselves from ego & narcissism, embrace true freedom, embrace life as more than just a hobby of collecting shit they don't even really need, and start to love their children more than they hate confronting the desperation of what a famous author & thinker termed " lives of quiet desperation," they'll be prepared to say "I am not afraid of default because I want to be free, and no longer desire to be a shackled debt slave."

Only then, realizing that they can't be controlled and forced to do things they detest for the rest of their lives in exchange for material things, most of which have a token happiness expiration date of 2 days to 2 months from purchase, can Americans be free again.

So, default. Move to Walden. Go Galt.

"I am not Jack's FICO score, Bank Account or Bottom Line. I am Jack's newly born freedom."

 

 

Bryan's picture

I really wonder what would happen if, maybe, 50% of all Americans decided to default on their own personal debt.  Maybe even 20% would do it.  Would it bring down the system and things would settle?  Or would we all just be miserable and get us nowhere?

MachoMan's picture

I'm not sure we're too far from your latter figure.

James's picture

Bryon asks - Or would we all just be miserable and get us nowhere?

 

 

We already are miserable and getting nowhere.

LawsofPhysics's picture

Yes,  I am in and prepared.  Let us see the treasury stop payment on the military paychecks first.  I have food and water for patriots, bring it.

tahoebumsmith's picture
Tyler’s Fifth Rule of Innovation:

“You’re not your job. You’re not how much money you have in the bank. You’re not the car you drive. You’re not the contents of your wallet. You’re not your fucking khakis.”

When we talk about fear, risk, mistakes, and losing it all, what are we really afraid of? Are we defined by the stuff we own, or would we prefer to be defined by what we accomplish and create for the world?

I’m not saying give all your stuff away or take foolish risks that harm your family or yourself. I’m saying don’t let the stuff you own start to own you to the point that you can’t live the life you want to live and do the things you want to do.