US juggling act begins after debt limit is reached

Washington: With the federal government hitting its $14.3 trillion (Dh52.48 trillion) debt limit, Treasury officials have started a complex fiscal juggling act to postpone the date when the government can no longer pay its bills.

But those accounting tricks, such as tapping two federal employees pension funds for loans, would buy only 11 more weeks for the White House and lawmakers to increase the debt ceiling.

On August 2, the juggling act would be over, Obama administration officials said. That would force the US, for the first time, to begin defaulting on interest payments owed to holders of government securities and trigger a sort of slow-motion, partial government shutdown in which Washington would stop paying employees, contractors and beneficiaries of Social Security and other programmes.

"It's a high-wire act," Rep. Peter Welch said of the measures initiated by Treasury Secretary Timothy F. Geithner to postpone the effect of the US reaching its debt limit.

"And when he runs out on flexibility and we miss that first payment and the market smashes us, it will be very difficult to put the genie back in the bottle."

President Obama and congressional Republicans are sharply at odds over major spending cuts to reduce the deficit. Republican leaders and a handful of Democrats have demanded such cuts as a condition for raising the debt ceiling, which Congress has never before failed to hike.

Amid the stalemate, the US reached the ceiling on Monday after the Treasury issued about $72 billion in securities it had auctioned off last week. With the date looming, Geithner already had started employing "extraordinary measures" to continue to allow the government to borrow.

Those steps include suspending investments in federal pension funds and in a currency exchange rate fund. The moves won't directly affect people yet, though such manoeuvres in the past have led to fin-ancial costs to taxpayers.

For example, the Government Accountability Office estimated that a seven-day delay in an auction of two-year securities during a debt-ceiling impasse in 2002 caused the Treasury to pay $19 billion in additional interest on them each year.

On May 6, the Treasury stopped issuing special securities used by state and local governments to manage their expenses on tax-exempt bonds. And on Monday, Geithner wrote to each member of Congress informing them of two additional measures.

He suspended the issuance of new debt for the Civil Service Retirement and Disability Fund, allowing the Treasury to start cashing in some of the securities held by the fund.

In numbers

— Los Angeles Times