US Can Keep Borrowing Until August 2nd Without Raising Debt Limit

Earlier today, US Treasury Secretary Timothy Geithner revealed that the United States will be able to continue borrowing until August 2nd without raising the nation's debt ceiling limit.

A few weeks back, Geithner proclaimed that the United States would reach its "debt ceiling" limit by May 16th, but would be able to keep borrowing until July 8th by undertaking "extraordinary measures".

According to Geithner, the nation is still expected to hit its debt ceiling limit by May 16th. However, the drop dead date of July 8th, which is when the United States will have run out of additional borrowing room created by the "extraordinary measures", has now been pushed back until August 2nd due to "stronger-than-expected tax receipts".

Both sides are gearing up for a major fight on this issue, which makes it fairly likely that the debt ceiling limit will end up being raised at the very last minute. Geither has said that the Treasury will "start taking action" this Friday because Congress is unlikely to act on the issue before May 16th. This means that as of May 6th, the Treasury will stop issuing State and Local Government Series securities, which "fund a variety of expenditures, including infrastructure improvements across the country".

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So what happens if we pass the drop dead date of August 2nd without getting a deal on the debt ceiling?

Well, the Treasury Department revealed on Monday that the United States will need to borrow $547 billion during the second half of the 2011 fiscal year.

This means that the country would either have to:

a) cut spending and raise taxes enough so that the $547 billion wouldn't have to be borrowed
b) start missing payments on many of "its legal obligations"

Neither option would be particularly pretty, and it's hard to imagine that things would get that far along, as the consequences of each scenario would be disastrous for the country.

Both sides are digging in their heels on this issue, which means that the fight over the "debt ceiling" will very likely last long into the summer.

Source: CNNMoney.com - Treasury Extends Debt Ceiling Window to Aug. 2

Source: Bloomberg.com - Geithner Says Ultimate Deadline on Debt Limit Pushed to August


Filed under: General Knowledge



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