The U.S. government hit the $14.3 trillion debt ceiling on Monday, setting in motion a rush to avoid a default.
By pursuing alternative measures, though, the timeframe will likely be extended to Aug. 2 versus last month's estimate of July 8. Priya Misra, head of U.S. Rates Strategy at BofA Merrill Lynch Global Research said in a report released Monday that the Treasury claims better than expected tax receipts enables them to extend the final date by three weeks. This August date is seen in Washington as the "real" deadline, and so the debate is unlikely to reach a conclusion long before then.
In an effort to jumpstart negotiations before then between Democrats and Republicans on the issue of raising the debt limit, Treasury Secretary Timothy Geithner sent a letter to Senate Majority Leader Harry Reid, D-Nev., detailing the steps the Treasury Department is taking to extend payment of government obligations.
Geithner (left) has declared a "debt issuance suspension period" for the Civil Service Retirement and Disability Fund, permitting Treasury to redeem a portion of existing Treasury securities held by that fund as investments and suspend issuance of new Treasury securities to that fund as investments. He also suspended the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.
“Each of these actions has been taken in the past by my predecessors during previous debt limit impasses,” Geithner wrote. “Federal retirees and employees will be unaffected by these actions. I have written to Congress on previous occasions regarding the importance of timely action to increase the debt limit in order to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens. I again urge Congress to act to increase the statutory debt limit as soon as possible.”
As far as the next steps, Misra believes despite earlier Democratic attempts to separate the issues, debt ceiling legislation will probably have to be attached to a broader deficit reduction bill. The exact specifications of the larger deficit reduction measure will be the focus of intense debate in coming weeks.