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Treasury to take steps to keep paying bills as debt limit nears

December 26, 2012|By Jim Puzzanghera
  • Treasury Secretary Timothy F. Geithner discussing the fiscal cliff on CBS's "Face the Nation."
Treasury Secretary Timothy F. Geithner discussing the fiscal cliff on… (CBS News / Chris Usher )

WASHINGTON -- The federal government will begin taking special steps this week to continue paying its bills as the nation prepares to hit its debt limit next week, Treasury Secretary Timothy F. Geithner said Wednesday.

In a letter to congressional leaders, Geithner said the U.S. would reach its $16.4 trillion debt limit on Monday.

To prevent the U.S. from defaulting on its obligations, the Treasury will begin a series of what it called "extraordinary measures" to juggle the federal government's finances to give Congress a few more weeks to increase the limit.

One of the first steps will start Friday when the Treasury plans to suspend sales of state and local government series Treasury securities, which count against the debt limit.

Geithner said that the measures normally would free up about $200 billion in additional borrowing authority, meaning the debt limit would not actually be hit for about two more months.

But given the "significant uncertainty" revolving around the fiscal cliff, Geithner warned that "it is not possible to predict the effective duration of these measures."

For example, if there is no fiscal cliff deal and taxes go up and spending cuts begin on Jan. 1, officials might have more time to raise the debt ceiling because the government would be spending less and bringing in more tax revenue.

But a downturn in the economy caused by the failure to get a fiscal-cliff deal could reduce the amount of money coming into the Treasury

The measures were used in 2011 when the nation last flirted with hitting the debt limit. After a partisan standoff, Congress agreed at the last minute to raise the debt ceiling. But the bitter wrangling led Standard & Poor's to downgrade the U.S. credit rating.

The 2011 deal to raise the debt ceiling included the $1.2 trillion in automatic spending cuts over 10 years that are part of the fiscal cliff. 

The Treasury has warned for months that the U.S. would hit the debt ceiling again by the end of 2012.

President Obama had been seeking a two-year increase in the debt ceiling as part of the fiscal cliff negotiations. House Speaker John Boehner (R-Ohio) had offered only a one-year increase before negotiations broke down last week.

Obama is returning to Washington on Thursday, as are senators, in hopes of striking a deal to avoid the fiscal cliff in the short-term as they continue to work on a broader deficit reduction package. Such a short-term deal probably would not include a debt-ceiling increase.

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