Debt-Ceiling Brinksmanship: Treasury Will Hit Legal Limit When It Borrows $13.86 Billion More

By Terence P. Jeffrey | May 4, 2011 | 6:05 PM EDT

Treasury Secretary Timothy Geithner addresses at a press conference at the conclusion of a G20 finance ministers’ meeting in Paris, France on February 19, 2011. (Photo: U.S. Treasury Department

( - As of the close of business yesterday, the U.S. Treasury was just $13.86 billion short of hitting the legal debt limit of $14,294,000,000,000.00, according to the Daily Treasury Statement released at 4:00 pm today.

In the first two business days of May, Treasury increased the debt by $44.2 billion.

The amount the Treasury borrows fluctuates from day to day and month to month, but in the first 215 days of fiscal year 2011—which began on Oct. 1, 2010—the Treasury has increased the national debt subject to the $14.294-trillion limit by a total of $769.3 billion. That equals an average of $3.58 billion in federal borrowing per day.

At that pace, the Treasury would exhaust its remaining $13.86 billion in borrowing authority and exceed the legal debt limit in less than four days.

Over the course of April, the Treasury managed to sharply curtail its borrowing—increasing the national debt subject to the legal limit by only $18.076 billion during the month.

In a letter sent to House Speaker John Boehner (R.-Ohio) on Monday, Treasury Secretary Timothy Geithner said that the Treasury Department would start taking “extraordinary measures” to evade the debt limit this week. On Friday, Geithner said, Treasury will stop selling State and Local Government Series Treasury securities, a special type of bond the federal government sells to state and local governments.

However, according to the latest Daily Treasury Statement, the Treasury has redeemed $68.949 billion worth of these bonds this year while selling only $52.896 billion in new ones--meaning that on net the Treasury has been able to reduce the debt by $16.053 billion this year thanks to reduced demand for these bonds from state and local governments.

Geithner also said in his letter to Boehner that the Treasury estimates it will hit the debt limit on May 16 and on that day he intends to declare a “debt issuance suspension period." That declaration will allow the Treasury to prematurely “redeem” intra-governmental bonds it has issued to the Civil Service Retirement and Disability Fund (a trust fund into which federal workers pay pension money) and use the room freed up under the debt limit by "redeeming" those intragovernmental bonds to sell debt in the public market in exchange for cash.

However, the Treasury secretary can only prematurely “redeem” enough "intragovernmental" debt from the Civil Service Retirement and Disability Fund (CSRDF) to cover the anticipated federal pension benefits that would be paid out from the trust fund for the length of the declared “debt issuance suspension period.”

According to a February report from the Government Accountability Office, that would equal an estimated $5.7 billion per month. So, if the Treasury secretary declared a 10-month “debt issuance suspension period” (DISP) that would free up only $57 billion in new borrowing authority. Additionally, once the DISP was over the Treasury would need to restore the debt owed to the CRSDF and pay the back interest on it.

“Once debt reaches the debt limit, Treasury is able to disinvest Treasury securities held by the CSRDF,” explained GAO. “To do so, Treasury must send a letter notifying Congress that it will not be able to issue debt securities without exceeding the debt limit and provide the expected length of the DISP, which Treasury uses to determine the amount of CSRDF investments that can be disinvested. Treasury is required to restore lost interest after the DISP has ended.”

In his letter to Boehner, Geithner said that these and other “extraordinary measures” that he planned to take to push back the day of reckoning on the debt limit would allow the government to extend its borrowing authority until August 2. He attributed some of that extended time to “stronger than expected tax receipts.”

“Largely as a result of stronger than expected tax receipts, we now estimate that these extraordinary measures would allow the Treasury to extend borrowing authority until about August 2, 2011, approximately three weeks later than was forecast last month,” Geithner wrote Boehner.

In fact, so far this year, according to the Daily Treasury Statements, federal tax receipts are running only $47.863 billion ahead of last year. Through May 3 in fiscal 2010, total federal tax receipts were $1.217446 trillion. Through May 3 in fiscal 2011, they were $1.265309.

The extra $47.863 billion in tax revenue the federal government has received in the first 215 days of fiscal 2011 is equal to 13.4 days of federal borrowing at Treasury’s current clip of borrowing $3.58 billion per day.

The current legal limit on the federal debt was established in a law that President Barack Obama signed on Feb. 12. 2010. That law lifted the  debt limit from $12.394 trillion to $14.294 trillion—giving the Treasury the legal authority to borrow an additional $1.9 trillion or about $16,165 per American household.