US Hits Debt Ceiling Limit on December 31; Geithner Unveils Treasury Plan to Buy More Time

On December 31 the US will once again hit the debt limit and Treasury Secretary Tim Geithner is working on an emergency plan to deal with the situation.

Here's the kicker. If the Fiscal Cliff hits (which it likely will), the increased tax revenue and spending cuts would automatically buy the Treasury some time.

Please consider Geithner's plan to buy time under debt ceiling.

The Treasury on Wednesday announced the first of a series of measures that should push back the day when the government will exceed its legal borrowing authority as imposed by Congress by around two months.

Without any action, Treasury said the government is set to reach its $16.4 trillion debt ceiling on December 31.

To cut government spending and delay bumping up against the debt ceiling, the Treasury will suspend issuance of state and local government series securities -- known as "slugs" -- beginning on December 28.

Investments in a government employee pension fund will also be suspended, along with some other measures, although Treasury did not give dates for when these other measures will begin.

"These extraordinary measures ... can create approximately $200 billion in headroom under the debt limit," Treasury Secretary Timothy Geithner wrote in a letter to congressional leaders.

Normally, these measures would buy the Treasury about two months time before hitting the debt ceiling, Geithner said in the letter. But a series of planned tax hikes and spending cuts due to take effect in early January could give Treasury further time if they take effect as scheduled, he said.

True Fiscal Cliff

The true Fiscal Cliff is years down the road and will be similar to the crisis about to hit Japan in 2013 or 2014. The way to address the problem is to balance the budget, exactly the opposite of what Obama and nearly everyone in Congress other than Ron Paul and Rand Paul want to do.

The term "Fiscal Cliff" as currently used is simply preposterous. The ultimate irony is the alleged "Fiscal Cliff" happens to be the most fiscally responsible plan currently under discussion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com