Debt Ceiling

May 2, 2011
The Honorable John A. Boehner
Speaker of the House
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Speaker:

Further to my letters of January 6 and April 4, 2011, I am writing again to Members of Congress regarding the importance of protecting America’s creditworthiness by enacting an increase in the statutory debt limit. This letter is to inform you of the extraordinary measures the Treasury Department will begin taking this week in anticipation of the date the debt limit will be reached, and to provide an updated estimate of the Department’s ability to use these measures to preserve lawful borrowing authority without exceeding the debt limit. In my last letter, I described
in detail the set of extraordinary measures Treasury is prepared to take in
order to extend temporarily our ability to meet the Nation’s obligations if
an increase is not enacted by May 16, when we estimate the limit will be
reached. Because it appears that Congress will not act by May 16, it will
be necessary for the Treasury to begin implementing these extraordinary
measures this week.

*On Friday, May 6, Treasury will suspend until further notice the issuance
of State and Local Government Series (SLGS) Treasury securities*. SLGS are
special-purpose Treasury securities issued to states and municipalities to
help them conform to tax rules that restrict the investment of proceeds from
the issuance of tax-exempt bonds. These bonds are used to fund a variety of
expenditures, including infrastructure improvements across the country.
When Treasury issues SLGS, they count against the debt limit. Because the
United States is very close to reaching the debt limit, Treasury must take
this action now. However, it is not without costs; *it will deprive state
and local governments of an important tool to manage their outstanding debt
expenses. *

*If Congress does not increase the debt limit by May 16*, the Treasury
Department will be forced to employ further extraordinary measures on that
date to provide headroom under the limit. Therefore, on May 16, I will (1)
declare a “debt issuance suspension period” under the statute governing the
Civil Service Retirement and Disability Fund, permitting us to redeem
existing Treasury securities held by that fund as investments, and to
suspend issuance of new Treasury securities to that fund as investments and
(2) suspend the daily reinvestment of Treasury securities held as
investments by the Government Securities Investment Fund of the Federal
Employees’ Retirement System Thrift Savings Plan. (Under the law, Federal
employees are protected by a requirement that both funds be made whole after
a debt limit increase is enacted.)

In addition, it may become necessary, at a time to be determined, to suspend
the daily reinvestment of Treasury securities held as investments by the
Exchange Stabilization Fund.

Largely as a result of stronger than expected tax receipts, we now estimate
that these extraordinary measures would allow the Treasury to extend
borrowing authority until about August 2, 2011, approximately three weeks
later than was forecast last month. This is a projection and is subject to
change based on government receipts and other factors during the next three
months. While this updated estimate in theory gives Congress additional
time to complete work on increasing the debt limit, I caution strongly
against delaying action. The economy is still in the early stages of
recovery, and financial markets here and around the world are watching the
United States closely. Delaying action risks a loss of confidence and
accompanying negative economic effects.

As I have written previously, *default by the United States on its
obligations would have a catastrophic economic impact that would be felt by
every American*. *A broad range of government payments would have to be
stopped, limited or delayed, including military salaries, Social Security
and Medicare payments, interest on debt, unemployment benefits and tax
refunds. A default on the Nation’s legal obligations would lead to sharply
higher interest rates and borrowing costs, declining home values and reduced
retirement savings for Americans. Default would cause a financial crisis
potentially more severe than the crisis from which we are only now starting
to recover*.

I want to emphasize that, contrary to a common misperception, the debt limit
has never served as a constraint on future spending, nor would refusing to
increase the debt limit reduce the obligations the country has already
incurred. Increasing the debt limit merely permits payment of obligations
Congress has already approved to citizens, servicemen and women, businesses
and investors. In order to honor those obligations, increasing the debt
limit is unavoidable. In fact, under both the President’s budget and the
House-passed Republican budget, the debt limit would need to be raised by
roughly the same amount in order to fund the government through the end of
FY2012.

Protecting America’s creditworthiness and our economic leadership position
in the world is a duty to our country that is shared by policymakers in both
parties, in the Legislative Branch as well as the Executive Branch.
Therefore any attempt by either party to use the full faith and credit of
the United States as a bargaining chip to advance partisan policy agendas
would be irresponsible.

President Obama is strongly committed to restoring fiscal responsibility to
our government, and he has put forward a specific framework and set in
motion a process to work with both parties to accomplish this critically
important objective. As that process moves forward, I again urge Congress
to act to protect America’s economic interests by approving an increase in
the debt limit as soon as possible.

Sincerely,

Timothy F. Geithner