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

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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