The US Treasury burned through its debt allowance in April, forcing Secretary Geithner to use a slew of last-ditch maneuvers to keep the lights on a few more months.
Geithner testified Monday that he can keep things together until August – but that Congress will absolutely not be able to stall after that.
April 17, around the time the Treasury actually ran out of debt, Geithner had this famous conversation with ABC News:
The media latched on his money quotes about “catastrophe” as well as his prediction that Congress would get it done. Average Americans were not really told the complexity of the situation.
For those in the finance community, two major problems stood out.
Number one: if Geithner was so confident Congress would do it, then it would have happened at the time we actually hit the limit. Lawmakers know these emergency tricks will make things even worse. And Geithner would not have spent 10 minutes begging Congress to do it if he wasn’t worried.
Number two: Geithner’s repeated warnings about the government defaulting are not true, at least not in the short term. Even if the Treasury lost its credit card tomorrow and could survive on nothing but revenue, there would be enough to pay all of our lenders.
Geithner rebuts by saying he does not want to be in the position of choosing to pay off debt over paying retirement checks, and that shutting down the welfare state would kill the economy as fast as going default anyway.
Two weeks later, Congress still hasn’t budged, forcing Geithner to survive by robbing Peter to pay Paul.
– The Treasury has, in the vague words of Washington Post, “nearly drained a $200 billion cash-management account at the Fed.” How precisely does the Treasury waltz into the Federal Reserve and drain an entire savings account? Does drained mean the money was taken or borrowed? No one seems to know. An exhaustive Google search didn’t turn up anything helpful.
– Reuters explains that Geithner has also stopped doing favors for city and county governments. Yes, the Treasury spends money it doesn’t have to issue securities for local-level bonds so that cities can remain afloat. Several major cities in need of this sugar daddy are starting to worry about their own fates.
– Wall Street Journal reports that the next resort, scheduled to happen Friday, means the federal government will stop contributing to its own pension system and possibly borrow against it. Assuming the debt ceiling is raised again, whatever money we keep out will eventually have to be paid into this.
– The Treasury will also stop making deposits into a variety of government financial accounts.
In a letter sent to Congress April 4, Geithner insisted these were the last four resorts he had left. If bad goes to worse, the final ditch is to sell off government property such as gold reserves and asset-backed securities. Geithner is reluctant to let it get that far.
Geithner told Congress Monday that emergency supplies can carry us until August 2.
Congress reacted today with something less than urgency. When asked why there wasn’t even a vote being scheduled on the debt, House Majority Leader Cantor (R-VA) coyly replied that he’d be happy to set one up so the Democrats would see how fast it got shot down.
Yes folks, this is your government hard at work. The Treasury hits the panic button and says the edge of the cliff is 90 days away. Congress doesn’t even have a draft of a bill to take a vote on yet. And the stock market opens high today because there’s nowhere else for the money to go.
After the epic failure of leadership Boehner and Cantor displayed last month with the annual budget, it’s hard to read their actions here. Did they learn a hard lesson and commit themselves to serious reform? Are Tea Party freshmen, stung by last month’s embarrassment, rebelling against leadership? Or this is another case of political posturing that will fold at the last minute?
Only time will tell.
While we wait, feel free to give us your prediction….