Thread: Treasury will run out of borrowed money by Oct. 17

Gregory Korte, USA TODAY 10:23 p.m. EDT September 25, 2013

.. the government would have only enough money to pay its bills as it has revenue on any given day. As of Oct. 17, the Treasury expects its cash-on-hand will be reduced to $30 billion. The government typically spends $60 billion every day.

It's not a coincidence that Oct. 17 is a Thursday, said Steve Bell, economic policy director for the Bipartisan Policy Center.

That's because the Treasury typically rolls over $100 billion in debt every Thursday, as old bonds mature and most investors simply use the proceeds to buy new bonds. Some bond holders may park their money elsewhere.

Treasury will run out of borrowed money by Oct. 17

WASHINGTON — The United States will run out of borrowed money "no later than Oct. 17" unless Congress raises the $16.7 trillion debt limit, Treasury Secretary Jacob Lew said in a letter to Congress Wednesday.

Lew's letter marks the first time he has given a date certain for when the government would hit the debt ceiling and comes as Congress is at another impasse on how to keep the government running and pay its past bills.

It's not a coincidence that Oct. 17 is a Thursday, said Steve Bell, economic policy director for the Bipartisan Policy Center.

That's because the Treasury typically rolls over $100 billion in debt every Thursday, as old bonds mature and most investors simply use the proceeds to buy new bonds. Some bond holders may park their money elsewhere. Others may demand higher yields. "But at what price? That;s the big imponderable," Bell said.

"I think people don't understand what this does to the market psychology. It's not within Congress's full control," said Bell, a former managing director of Salomon Brothers. He said bond rates are creeping up on the uncertainty.

Lew expressed the same worry in a speech to the Economic Club of Washington last week, saying a massive sell-off of bonds could create an immediate crisis. "The point is, trying to time a debt limit increase to the last minute could be very dangerous," he said.

The nation has been at the debt limit since May 17. Since then, the Treasury Department has undertaken what it calls "extraordinary measures," which include delaying pension fund payments and drawing down an emergency fund.

Once those measures are exhausted, the government would have only enough money to pay its bills as it has revenue on any given day. As of Oct. 17, the Treasury expects its cash-on-hand will be reduced to $30 billion. The government typically spends $60 billion every day.

It's unclear exactly how Treasury would juggle those payments. During the last debt-limit crisis in 2011, the Treasury Department ruled out many stopgap measures to maintain spending and pay its debts, such as selling off assets. The United States has more than $350 billion in gold reserves on its balance sheet, for example, but Treasury officials said a "fire sale" on gold would hurt the dollar and the economy, according to a 2012 report from the Treasury Office of the Inspector General. The Treasury has no practical way of reducing payments by an across-the-board percentage to stay under the debt limit.

"If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history," Lew said.

Even dancing so close to a debt-limit deadline can be costly. In 2011, the debt-limit showdown cost the government $1.3 billion in increased borrowing costs, according to a review last year by the Government Accountability Office. That study looked at the yield spread between government and corporate bonds to determine how the markets were reacting to the uncertainty caused by the debt-limit debate.

Lew's warning comes as Congress debates another measure that would authorize spending for the new fiscal year beginning Oct. 1. A resolution passed by the Republican House would keep government spending roughly at current levels and extend the debt ceiling — but only for paying the principal and interest on the debt.

The Obama administration opposes the pay-the-debt-first plan, which Lew called "default by another name."

"The debt ceiling must be raised," White House spokesman Jay Carney said Wednesday. "This cannot and should not be a matter of negotiation."

http://www.usatoday.com/story/news/p...er-17/2867471/

Sen. Ted Cruz Will Donate His Salary to Charity During Shutdown

Sen. Ted Cruz and Sen. Rand Paul have become the two most important voices in DC politics. They worked together during Rand’s filibuster earlier this year and during Ted’s filibuster this last week.

But the most important thing we’ve seen is personal responsibility and good character from them both. Rand Paul gave $600,000 BACK to the federal government from his office. He’s in it to cut spending in any manner possible, even his own office’s budget.

And now, Sen. Ted Cruz has made a similar announcement, saying that he will donate his salary to charity for every day the government is shut down.

http://www.capitalisminstitute.org/ted-cruz-leads/

US default could be 'catastrophic': Treasury

World top bankers warn of dire consequences if U.S. defaults