National Debt reaches $14.3 Trillion!! Financial Terror

[Guest David]

Great business results are the best hope for paying down the deficit. We need to cut spending, find ways to give business breaks, and at the same time, go after tax fraud in the marketplace. This combination may lead to boom times, especially if we stop importing poverty which only aggravates debt.

[Guest Martin]

Just this last week, three Congressional leaders — Senator Mark Warner, Congressman Allen West, and Senator Joe Manchin publicly warned that we are approaching — I quote — "Financial Armageddon," ... "Fiscal Armageddon" ... and a "Fiscal Titanic."

 

And on Thursday, no fewer than TEN former members of the White House Council of Economic Advisers — including President Obama's former top economic adviser Christina Romer — added their voices to those warning of a looming economic catastrophe.

 

In an editorial published by Politico, the bipartisan group warned that unless the White House and Congress slash the federal deficit, bond investors are likely to turn on the United States, triggering an economic crisis that could — again, I quote — "DWARF 2008."

 

Consider that for a moment: In 2008, Wall Street came within a whisker of a financial meltdown. Financial monoliths like Citigroup and Bank of America nearly went bust. And Lehman — one of the giants of Wall Street — simply ceased to exist.

 

Now, these top economists and Congressmen are saying, in effect, "That was NOTHING. Just wait until you see what happens NEXT!"

 

American Apocalypse

 

For the last week, I've been renewing my warnings to you nearly every day. I've told you that unlike the credit crisis that triggered the last major stock market collapse ...

 

The "Fiscal Armageddon" that could "dwarf 2008" will be intensely personal. Millions of Americans will face the specter of lost incomes ... lost savings ... lost buying power ... lost homes ... lost liberty.

[Guest LAW]

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

[Guest LAW]

Previous Secretaries of the Treasury, in both Republican and Democratic administrations, have taken extraordinary measures in order to prevent the United States from defaulting on its obligations as Congress deliberated on increasing the statutory debt limit.[1] Four of these extraordinary measures are available this year. Other measures taken by previous Treasury Secretaries, however, are either unavailable or of limited use.

 

The extraordinary measures currently available are: (1) suspending sales of State and Local Government Series (SLGS) Treasury securities; (2) determining that a “debt issuance suspension period” exists, which would permit the redemption of existing, and the suspension of new, investments of the Civil Service Retirement and Disability Fund (CSRDF); (3) suspending reinvestment of the Government Securities Investment Fund (G Fund); and (4) suspending reinvestment of the Exchange Stabilization Fund (ESF). These measures are described in more detail below.

 

These measures, all of which have been employed during previous debt limit impasses, have the effect of creating or conserving headroom beneath the debt limit. Importantly, these extraordinary measures—even taken together—are of limited use. On average, the public debt of the United States increases by approximately $125 billion per month (although there are significant variations from month to month). In total, the extraordinary measures free up approximately $165 billion in headroom under the limit before June 30, 2011, as described below. In addition, if the United States does not exhaust the $165 billion before June 30, 2011, the law governing the CSRDF permits Treasury to take one more action on June 30, which would create an additional $67 billion in headroom on that date.

 

Under Treasury’s current projections, these extraordinary measures would be exhausted after approximately eight weeks, meaning no headroom to borrow within the limit would be available after about July 8, 2011. This estimate is dependent on a number of factors, such as the total amount of tax receipts, which cannot be known with certainty until they actually come in during the second half of April, and the fact that large payments like Social Security and interest payments on Treasury securities are made at certain times of the month.

 

It should also be noted that these extraordinary measures are less useful than in previous debt limit impasses. In the 1995-1996 debt limit impasse, for example, the monthly increase in debt was not as large, and the extraordinary measures were therefore able to postpone the date by which the debt limit needed to be increased for several months. The same was true during the 1985 and 2003 debt limit impasses. And, as noted below, some extraordinary measures that were used in the past are no longer available or of limited use today.

[Guest LAW]

1. State and Local Government Securities (SLGS)

 

The Treasury Department has authority to suspend its issuance of State and Local Government Series Treasury securities (SLGS). This, however, is a limited measure that does not free up borrowing authority.

 

SLGS are special purpose Treasury securities issued to state and local government entities. In ordinary times, the Treasury Department issues SLGS to state and local governments to assist these governments in complying with Federal tax laws when they have cash proceeds to invest from their issuance of tax exempt bonds. When Treasury issues these securities, they count against the debt limit.[2] There is no statutory or other requirement for the Treasury Department to issue SLGS; they are issued in order to assist state and local governments, and Treasury may suspend SLGS sales during or in anticipation of a debt limit impasse.

 

This action does not free up headroom under the debt limit. Rather, it conserves headroom (i.e., it eliminates increases in debt that would count against the debt limit if issued).[3] Utilizing this measure reduces uncertainty in projecting the growth of the debt.[4]

 

2. Civil Service Retirement and Disability Fund

 

Once the debt limit has been reached, Treasury has authority to take actions regarding investments under the Civil Service Retirement and Disability Fund (CSRDF). This includes declaring a "debt issuance suspension period" with respect to the CSRDF investments.[5]

 

a. Declaring a "Debt Issuance Suspension Period"

 

The CSRDF provides defined benefits to retired and disabled Federal employees covered by the Civil Service Retirement System. The fund is invested in special-issue Treasury securities, which count against the debt limit. Congress has given Treasury statutory authority to take certain actions in the event of a debt limit impasse. Specifically, the statute authorizes the Secretary of the Treasury to determine that a "debt issuance suspension period" exists and, once he has done so, Treasury can (1) redeem certain existing investments in the CSRDF, and (2) suspend new investment.

 

The Secretary of the Treasury does not have unlimited discretion to declare a debt issuance suspension period. Under the statute that governs the CSRDF, the term "debt issuance suspension period" means the period of time that the Treasury Secretary determines that Treasury securities cannot be issued without exceeding the debt limit. The determination of the length of the period must be based on the facts as they exist at the time.

 

Declaring a debt issuance suspension period is a limited measure that relates only to the CSRDF; it has no impact on any other investments or any other portion of the debt. Moreover, it only provides limited additional time. Assuming a two-month debt issuance suspension period, this measure would free up approximately $12 billion in headroom.[6]

 

Even if the Secretary were to declare a much longer debt issuance suspension period, this would provide only limited additional headroom. Declaring a 12-month debt issuance suspension period, for example, would only free up approximately $72 billion in additional headroom.[7] In other words, because the debt increases on average by approximately $125 billion per month, a 12-month debt issuance suspension period (which frees up roughly $72 billion in headroom) would postpone the date by which the debt limit must be increased by only a matter of weeks.

 

During a debt issuance suspension period, civil service benefit payments would continue to be made as long as the United States has not yet exhausted the extraordinary measures. Once the extraordinary measures have been exhausted, however, the U.S. Government will be limited in its ability to make payments across the government. After the debt limit impasse has ended, the statute provides that the CSRDF is made whole.[8]

 

b. One-time measure available on June 30 if the United States has not exhausted the measures before that date

 

If the United States has not exhausted the measures before June 30, the statute governing the CSRDF provides an additional one-time measure on that date that frees up headroom.

 

The same statute that authorizes Treasury to redeem existing investments during a debt issuance suspension period also authorizes Treasury to suspend new investments by the CSRDF during such a period. On June 30, approximately $67 billion in CSRDF investments mature. Ordinarily the proceeds of the maturing investments would be reinvested. But with the investment-suspension authority available, Treasury may suspend the reinvestment of the maturing investments. Suspending the reinvestment would free up approximately $67 billion in headroom.

 

It should be understood that this suspension of reinvestment that frees up headroom is a one-time measure: it is only available on June 30.[9] The benefit of this additional headroom, moreover, is offset in part by the fact that on that same day Treasury is required to make $12 billion in interest payments on certain of its securities held by the public.

 

3. G Fund

 

Once the debt limit has been reached, Treasury may also suspend the daily reinvestment of the Treasury securities held by the Government Securities Investment Fund (G Fund) of the Federal Employees' Retirement System Thrift Savings Plan.

 

The G Fund is a money market defined-contribution retirement fund for Federal employees. The Fund is invested in special-issue Treasury securities, which count against the debt limit. The entire balance matures daily and is ordinarily reinvested. Congress has granted Treasury the statutory authority to suspend reinvestment of all or part of the balance of the G Fund when the Secretary determines that the Fund cannot be fully invested without exceeding the debt limit.[10]

 

Using this measure immediately frees up headroom under the debt limit. Because the G Fund balance is approximately $130 billion, using this measure can immediately create up to approximately $130 billion in headroom.

 

During the period of the investment suspension, payments from the G Fund continue to be made as long as the United States has not yet exhausted the extraordinary measures. Once the United States has exhausted the extraordinary measures, however, the U.S. Government will be limited in its ability to make payments across the government. After the debt limit impasse has ended, the G Fund is made whole.[11]

 

4. Exchange Stabilization Fund

 

Treasury may also suspend the daily reinvestment of Treasury securities held by the Exchange Stabilization Fund (ESF).

 

The ESF has a number of uses, including purchasing or selling foreign currencies. A portion of the ESF is held in U.S. dollars, and the dollar-balance of the ESF is invested in special-issue Treasury securities. The entire dollar-balance matures daily. There is no requirement that the Treasury Department invest the ESF, so Treasury may discontinue investing the dollar-balance of the ESF during a debt limit impasse.

 

Suspending the daily reinvestment of the dollar-balance of the ESF immediately frees up headroom under the debt limit. Because the dollar-balance of the ESF is approximately $23 billion, this would create up to approximately $23 billion in headroom.

 

After a debt limit impasse, the interest lost by the ESF is not restored: there is no existing authority to reimburse the ESF for lost interest during the period that the dollar-balance is not invested.

[Guest American4Progress]

Debt Limit Blackmail

 

The United States officially hit its statutory debt limit yesterday, preventing the government from borrowing any more money, as Republicans continue to demagogue the issue but refuse to act. Since a large portion of federal spending is borrowed money, the Treasury Department has been forced to take extraordinary measures to allow the government to continue meeting its obligations, including tapping into government employee pension funds to free up cash. These measures and others should keep cash flow adequate until approximatly August 2, but if lawmakers have still failed to raise the debt limit by then, the effect could be "catastrophic," as Treasury Secretary Timothy Geithner said yesterday in a letter to congressional leaders. In its 235-year history, the U.S. government has never defaulted, so the exact consequences are impossible to predict, but all experts agree that defaulting on our financial obligations would be disastrous for the global economy, shattering investors' confidence in the American government and economy while increasing the cost of borrowing and possibly shutting down the government. Geithner has said defaulting on our obligations would almost certainly cause a double-dip recession, where a second dip could be worse than the Great Recession of 2008. Moreover, as Nobel Prize winning economist Paul Krugman noted, failing to raise the debt limit would "act as a terrible signal about the US political system," telling the world "we're a banana republic, with crazy extremists having so much blocking power that we can't get our house in order." Indeed, fueled by far-right tea party anti-debt dogma, Republican leaders have taken the debt ceiling -- and thus the entire global economy -- hostage, refusing to raise the ceiling unless they are allowed to enact their partisan agenda of radical spending cuts. Many conservative lawmakers have said they will not vote to raise the limit under any circumstance, while others have demanded extraordinary concessions.

 

HOSTAGE TAKING: Hate radio host Rush Limbaugh said yesterday that the debt limit is a "manufactured crisis," and in a way, he's right -- but not in the way he intended. The debt ceiling is an entirely arbitrary cap Congress sets on the amount of money the federal government can borrow. There is no real reason for having a statutory debt ceiling, which didn't exist until 1917. The amoung of debt the government takes on should be determined by budgetary needs, through the normal Congressional budgeting process, not some arbitrary redline that offers politicians a perennial issue on which to grandstand. But even with some empty grandstanding, Congress has routinely raised the debt ceiling for decades, increasing the limit 100 times since 1940. Ths limit was raised seven times under President Bush, with hardly any real opposition from Republicans. "t has been a regular, even routine matter. In fact, for many years, it was just rolled right into the budget process, and they didn't have a separate vote to raise the debt limit," NPR noted. But this year, Republicans have seen a convenient opportunity to score political points and advance their partisan agenda, even it means risking the American and global economies. Republican leaders, including House Speaker John Boehner (R-OH) and Senate Minority Leader Mitch McConnell (R-KY) have made it clear they understand the consequences of not raising the debt limit and have said publicly that the limit must be raised.Yet these same leaders have threatened to vote against any increase in the debt limit if their demands aren't met -- and their demands are huge: "We should be talking about cuts of trillions, not just billions," Boehner said. "This is a hostage situation...blackmail," Krugan wrote. "In effect, they will have ripped up the Constitution and given control over America's government to a party that only controls one house of Congress, but claims to be willing to bring down the economy unless it gets what it wants." Indeed, for their demands to be effective, Republicans have to be willing to "shoot the hostage" and let the U.S. government hit the debt ceiling and default on its financial obligations.

 

DOWNPLAYING THE THREAT: Meanwhile, a growing number of Republican lawmakers, especially Tea Party freshmen, have tried to downplay the threat of hitting the debt limit or defaulting. "The case has not been made that this is an absolute necessity," Rep. Bill Huizenga (R-MI) said last week. "The debt ceiling really doesn't matter," the conservative blog Red State wrote recently. But these claims ignore a danger that even former President Reagan, the great conservative icon, recognized. Arguing for raising the ceiling in 1983, Reagan said, "the risks, the costs, the disruptions, and the incalculable damage" of not doing so demanded the ceiling be increased. More reasonable conservatives today have come to the same conclusion. "Let me tell you what's involved if we don't lift the debt ceiling: financial collapse and calamity throughout the world," Sen. Lindsey Graham (R-SC) told CNN. Even Boehner warned of "financial disaster, not only for our country but for the worldwide economy." Rep. Frank Lucas (R-OK) said, "I won't throw the country into the street" by not raising the debt limit. Conservative Washington Post columnist George Will said it could be "suicidal" for Republicans actually block an increase in the debt ceiling.

 

THE 'PAY CHINA FIRST' PLAN: Rep. Jim Jordan (R-OH), chairman of the important Republican Study Committee, suggested yesterday that hitting the debt limit could be a good thing. "Keeping the debt ceiling at its current level would force Congress to prioritize spending , but it would not force a default on our debt." Jordon's claim that U.S. would not default is based on the assumption that the government would be able to cover all of its expenses through tax revenue alone. Sen. Pat Toomey (R-PA) has made the same argument and even proposed a bill to implement this plan. But while they are technically correct, tax revenue contributes only around 60 percent of every dollar spent, so this plan would force the government to cut about 40 percent of its activities literally overnight to keep spending in line with revenues. Moreover, as CAP fellow Matt Yglesias points out, this approach doesn't actually prevent a default from occurring. Deputy Treasury Secretary Neil Wolin said much the same thing, calling Toomey's plan "unworkable." Others have appropriately dubbed Toomey's plan the "Pay China First" plan because it would prioritize payments to our debtors, including China, over paying for critical services Americans rely on. "This wouldn't avert a potential global economic catastrophe, but it would make sure the United States wrote checks to foreign governments before anyone else," the Washington Monthly's Steve Benen wrote.

[Guest Tea Party Patriot]

Read this.

 

What is the Debt Ceiling?

--A column by Congressman Geoff Davis

 

Washington, Jun 20 -

As Congress and the President continue to negotiate terms on the debt ceiling before the August deadline, some may ask: what exactly is the debt ceiling?

 

Created by Congress in 1917, the debt ceiling limits the total amount of money the federal government can borrow by law. While Congress has the power of the purse and authorizes new spending, the debt ceiling limits the ability of the Treasury Department to finance the legal spending obligations that Congress and the President have already made. Failure to pay for those obligations would result in the United States defaulting and setting off a string of events that would be catastrophic for our economy. It is equally clear that continuing to borrow without significant spending cuts and substantial budget reform is a serious threat to economic growth and job creation.

 

Interest on U.S. Treasury securities plays a large role in setting the benchmark for interest rates on other financial services products we all use, such as mortgages, business loans, credit cards, car loans, and student loans. So, if the federal government were to default on its debt obligations, the cost of borrowing for the federal government would increase substantially, which would in turn increase the cost of borrowing for the rest of us. Furthermore, a debt default could stop, limit or delay payments from the federal government, such as tax refunds, salaries to our men and women in uniform and Social Security and Medicare benefits.

 

While defaulting on the federal debt would have serious consequences for our economy and every American, we cannot continue spending without reform. It is simply not acceptable to raise the debt limit in a “clean” vote as called for by the President and some Democrats in Congress without spending reforms. This would allow the government to continue spending money we do not have, and would irresponsibly kick the can down the road on addressing our enormous deficit and debt.

 

The debt limit is not the real problem; the real problem is that, today, the federal government borrows forty cents of every dollar it spends. This is unacceptable and unsustainable. It is time to put a long-term plan in place for a turnaround that gets our fiscal house in order.

 

The original purpose of the debt ceiling was to force Congress to consciously approve more borrowing and therefore the periodic vote should act as a check and balance against runaway deficits and debt. Unfortunately, for too long Washington has treated the debt limit as a routine action, as opposed to the serious check and balance it was supposed to be.

 

Just like a family or business that finds itself in deep debt, we need to determine and follow through on a realistic workout plan to balance our budget and pay down our debt to solve our long-term spending problems in a responsible way.

 

My colleagues and I are demanding agreement to such a long-term spending reform plan from President Obama before we consider any increase to the debt limit.

 

House Republicans will not back down from our demand to begin addressing our debt crisis now. The debt limit is serving its intended purpose by giving us the opportunity to make these changes now, before it is too late.

[Guest LAW]

The debt ceiling has to be raised per the constitution, 14th amendment section 4.

 

http://www.ourdocume...page=transcript

 

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.