Treasury Resumes "Extraordinary Measures" to Work Around Debt Ceiling
Secretary of the Treasury Jack Lew likely did a lot of copying and pasting when he drafted his letter to leaders in Congress last week. The letter outlined the “extraordinary measures” the Treasury will take to avoid exceeding the borrowing limits. He once again urged Representatives and Senators to do the “responsible” thing; meaning increase the debt ceiling without dither or delay. He and his predecessors have made the same appeal a lot in recent years.
Congress agreed one year ago to suspend the debt ceiling for 12 months and let the Treasury borrow whatever was needed. Once the year passed, the new debt ceiling is to be established at the current amount borrowed. The period ends March 16th, and the total debt figures to stand at around $18.1 trillion.
Lew plans to implement the first of the extraordinary measures on March 13th. The federal government will stop issuing special purpose bonds that state and local governments can purchase to help finance construction and other projects.
In recent years, these measures have become standard operating procedure. Lew should probably stop using the word “extraordinary.” It’s routine for Congress to approve huge increases in spending, then wrangle over whether or not to increase the borrowing limit when the money runs out. The Treasury Department digs into its bag of accounting tricks every time.
Most expect the measures to provide a few months of leeway before Congress must once again address the matter (by presumably caving again). By fall, we shall see if the new Republican Congress stands ready to deliver on the rhetoric spouted during battles when the Democrats had control. We will be shocked to find Congress willing to impose genuine limits on itself, regardless of who is in charge.
The real question is: when will investors return their focus to exponentially growing debt and perpetual deficits here at home? “Extraordinary” is the perfect adjective to describe the dollar’s run higher when measured against other unbacked fiat currencies, despite ever weakening fundamental underpinnings. Those concerns are forgotten, but not gone.