Today,
as Members return from recess, Secretary Geithner sent the following
letter to Congress regarding the debt limit, which we estimate will be
reached on May 16. He also details the extraordinary measures that
Treasury will begin implementing this week in advance of that deadline (download the signed letter here). For more information on the State & Local Government Series (SLGS) referenced in the letter, read these FAQs. And get the facts about the debt limit, including previous letters from the Secretary and other information here.
May 2, 2011
The Honorable John A. Boehner
Speaker of the House
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Speaker:
Further to my letters of January 6 and April 4, 2011, I am writing
again to Members of Congress regarding the importance of protecting
America's creditworthiness by enacting an increase in the statutory debt
limit. This letter is to inform you of the extraordinary measures the
Treasury Department will begin taking this week in anticipation of the
date the debt limit will be reached, and to provide an updated estimate
of the Department's ability to use these measures to preserve lawful
borrowing authority without exceeding the debt limit. In my last
letter, I described in detail the set of extraordinary measures Treasury
is prepared to take in order to extend temporarily our ability to meet
the Nation's obligations if an increase is not enacted by May 16, when
we estimate the limit will be reached. Because it appears that Congress
will not act by May 16, it will be necessary for the Treasury to begin
implementing these extraordinary measures this week.
On Friday, May 6, Treasury will suspend until further notice the
issuance of State and Local Government Series (SLGS) Treasury
securities. SLGS are special-purpose Treasury securities issued to
states and municipalities to help them conform to tax rules that
restrict the investment of proceeds from the issuance of tax-exempt
bonds. These bonds are used to fund a variety of expenditures,
including infrastructure improvements across the country. When Treasury
issues SLGS, they count against the debt limit. Because the United
States is very close to reaching the debt limit, Treasury must take this
action now. However, it is not without costs; it will deprive state
and local governments of an important tool to manage their outstanding
debt expenses.
If Congress does not increase the debt limit by May 16, the
Treasury Department will be forced to employ further extraordinary
measures on that date to provide headroom under the limit. Therefore,
on May 16, I will (1) declare a "debt issuance suspension period" under
the statute governing the Civil Service Retirement and Disability Fund,
permitting us to redeem existing Treasury securities held by that fund
as investments, and to suspend issuance of new Treasury securities to
that fund as investments and (2) suspend the daily reinvestment of
Treasury securities held as investments by the Government Securities
Investment Fund of the Federal Employees' Retirement System Thrift
Savings Plan. (Under the law, Federal employees are protected by a
requirement that both funds be made whole after a debt limit increase is
enacted.)
In addition, it may become necessary, at a time to be determined,
to suspend the daily reinvestment of Treasury securities held as
investments by the Exchange Stabilization Fund.
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. This is a projection
and is subject to change based on government receipts and other factors
during the next three months. While this updated estimate in theory
gives Congress additional time to complete work on increasing the debt
limit, I caution strongly against delaying action. The economy is still
in the early stages of recovery, and financial markets here and around
the world are watching the United States closely. Delaying action risks
a loss of confidence and accompanying negative economic effects.
As I have written previously, default by the United States on its
obligations would have a catastrophic economic impact that would be felt
by every American. A broad range of government payments would have to
be stopped, limited or delayed, including military salaries, Social
Security and Medicare payments, interest on debt, unemployment benefits
and tax refunds. A default on the Nation's legal obligations 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.
I want to emphasize that, contrary to a common misperception, the
debt limit has never served as a constraint on future spending, nor
would refusing to increase the debt limit reduce the obligations the
country has already incurred. Increasing the debt limit merely permits
payment of obligations Congress has already approved to citizens,
servicemen and women, businesses and investors. In order to honor those
obligations, increasing the debt limit is unavoidable. In fact, under
both the President's budget and the House-passed Republican budget, the
debt limit would need to be raised by roughly the same amount in order
to fund the government through the end of FY2012.
Protecting America's creditworthiness and our economic leadership
position in the world is a duty to our country that is shared by
policymakers in both parties, in the Legislative Branch as well as the
Executive Branch. Therefore any attempt by either party to use the full
faith and credit of the United States as a bargaining chip to advance
partisan policy agendas would be irresponsible.
President Obama is strongly committed to restoring fiscal
responsibility to our government, and he has put forward a specific
framework and set in motion a process to work with both parties to
accomplish this critically important objective. As that process moves
forward, I again urge Congress to act to protect America's economic
interests by approving an increase in the debt limit as soon as
possible.
Sincerely,
Timothy F. Geithner
Identical letter sent to:
The Honorable Nancy Pelosi, House Democratic Leader
The Honorable Harry Reid, Senate 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