U.S. Government Tapping Federal Pension Funds to Pay Its Bills

Ryan Pushes Spending Cuts as U.S. Hits Debt Limit; Feds Dip into Pensions Funds to Pay Its Bills

The government could temporarily tap tens of billions of dollars from two federal employee retirement programs if Congress fails to raise the federal debt ceiling next month, Treasury Secretary Timothy Geithner told lawmakers. The government expects to hit a $14.3 trillion debt ceiling on May 16 or before, Geithner said in a Monday letter... Geithner said borrowing money from the federal retirement programs and other "extraordinary measures" available to the government would stave off the need to raise the debt ceiling until around July 8. Once those measures are exhausted, the government "will be limited in its ability to make payments across the government," Geithner said. In that case, retirees' pensions could be affected. Adcock said that, if that were to happen, any impact on retirement payouts would be "the least of their problems because we'll face a worldwide economic collapse. "I think people would understand what's at stake and cooler heads would prevail," added Dan Adcock, legislative director for the National Active and Retired Federal Employees Association. - Treasury may borrow federal retirement funds in debt emergency, Federal Times, April 5, 2011

May 16, 2011

Reuters – The United States ran up against the legal limits of its borrowing authority on Monday as a top Republican ratcheted up his party's demand for deep spending cuts as part of any increase on the debt ceiling.

The Treasury Department said the nation had hit its $14.294 trillion debt limit -- a milestone that has little practical impact beyond injecting a note of urgency into the debate over taxes and spending that has dominated Washington this year.

Treasury said it can stave off default until early August, in part by tapping federal pension funds to pay its bills.

Congress is not expected to raise the debt cap until sometime this summer as lawmakers try to hold it hostage for a wider deficit-cutting deal.

Representative Paul Ryan, the chairman of the House of Representatives Budget Committee, said any deal would have to include spending cuts that are larger than the amount of the debt-ceiling increase -- a tougher stance than the conditions that have been laid out previously by other party leaders.

"For every dollar the president wants to raise the debt ceiling, we can show him plenty of ways to cut far more than a dollar of spending," Ryan said in remarks prepared for delivery in Chicago.

A failure to raise the debt ceiling in time would force the United States to default on obligations, whether payments to Social Security retirees or interest on the debt. That could bring on a crippling financial crisis, push the United States back into recession and roil economies and markets across the globe.

Markets shrugged off the news. The benchmark 10-year Treasury bond yielded 3.18 percent in morning trading, well below its historical average, as investors continued to view U.S. debt as a safe haven in an uncertain economic environment.

Still, concern about the country's fiscal situation may be prompting foreign investors to shift their purchases toward shorter-dated assets, which carry less risk, according to Treasury data.

The United States, unlike other developed countries, requires legislative action to increase its borrowing authority.

Congress has raised the debt limit 74 times since 1962 but lawmakers from both parties say they will not back an increase this time unless it includes measures to ensure that the country's total debt does not rise to a level that could precipitate a Greek-style fiscal crisis.

CAMPAIGN SEASON UNDERWAY

With the 2012 campaign season already under way, lawmakers are eager to show voters that they are taking steps to rein in a debt load that has more than doubled in the past 10 years due to tax cuts, wars in Iraq and Afghanistan, and the deepest recession since the 1930s.

Republicans are pushing for steep spending cuts while Democrats say tax hikes have to be part of the answer as well -- a stance that is backed by a majority of voters and financial experts, polls show.

In talks led by Vice President Joe Biden, top Democratic and Republican lawmakers have identified some areas, such as farm subsidies, that should be cut back. But those proposed cuts are dwarfed in dollar terms by areas -- especially taxes and healthcare -- on which they disagree.

Republicans in the House of Representatives have backed a budget plan that would scale back government-run health plans like Medicare, which are projected to eat up a growing share of the federal budget in coming decades as the population ages and medical costs continue to outstrip inflation.

Democrats hope to turn public unease with Ryan's plan into gains at the ballot box. The Democratic Congressional Campaign Committee, which aims to win back control of the House, unveiled a new campaign on Monday with the stark slogan:

"Vote Republican, End Medicare."

As Debt Limit Reached, Agreement Still Far Off

Mr. Biden say they are looking at cuts to agriculture subsidies and federal retirement programs, stepped-up antifraud efforts, increased premiums for pension plans backed by the Pension Benefit Guaranty Corporation, and the sale of wireless spectrum and government properties. The talks are at an early stage and potential areas of agreement are preliminary, officials warn. But Democrats have not ruled out some thorny issues, according to people familiar with the negotiations, including reforms to the pension program for federal workers.

May 16, 2011

The Wall Street Journal - The U.S. government is expected to hit the $14.294 trillion debt ceiling Monday, setting in motion an uncertain, 11-week political scramble to avoid a default.

The Treasury Department said Monday it will stop issuing and reinvesting government securities in certain government pension plans, part of a series of steps designed to delay a default until Aug. 2.

The Treasury's moves buy time for the White House and congressional leaders to reach a deficit-reduction agreement that could clear the way for enough lawmakers to vote to raise the amount of money Congress allows the nation to borrow.

Gene Sperling, director of the National Economic Council, said reaching the debt ceiling "should be a warning bell to the political system that it's time to get serious about preserving our full faith and credit." The Obama administration says a default would tip the U.S. back into a financial crisis.

But the pathway to a deal remains unclear, even to those doing the negotiating. The White House and Republicans are giving conflicting signals about how close they are to a deal. Vice President Joe Biden said last week the contours of an agreement were taking shape. House Speaker John Boehner painted a different picture Sunday, saying on CBS's Face the Nation "I'm not seeing any real action."

Many Republicans and some Democrats have said they won't vote to increase the debt ceiling without an accompanying deal to cut spending or tackle such longer-term fiscal problems as health-care costs. They argue the debt ceiling is a good venue to force changes needed to help secure the nation's solvency.

People familiar with the negotiations led by Mr. Biden say they are looking at cuts to agriculture subsidies and federal retirement programs, stepped-up antifraud efforts, increased premiums for pension plans backed by the Pension Benefit Guaranty Corporation and the sale of wireless spectrum and government properties.

The talks are at an early stage and potential areas of agreement are preliminary, officials warn. But Democrats have not ruled out some thorny issues, according to people familiar with the negotiations, including reforms to the pension program for federal workers.

The areas being examined amount to a sliver of the $4 trillion goal officials have set for deficit reduction over the next 10 years.

And taxes remain a roadblock. Republican leaders say tax increases can't be part of any deficit plan, but White House officials have said any plan must include revenue increases.

Mr. Sperling said the White House wants an agreement "weeks in advance as opposed to being in stalemate in late July where everything is coming down to the wire." Mr. Boehner appeared to agree, saying Sunday a deal doesn't "have to wait until the eleventh hour."

A group of House Republicans has questioned the validity of the August deadline, suggesting the Treasury could sell assets, such as gold reserves, to keep paying creditors. Treasury officials have rejected the idea, but could be forced to rethink if talks stall.

The U.S. government has hit the debt ceiling before, most notably in 1995 and 1996 when the Clinton administration and House Republicans squared off over government spending. Eventually, though, lawmakers reached deals and the country hasn't defaulted on its debt in modern history.

Bankers and business executives warned lawmakers last week that default could trigger a financial crisis, sending interest rates soaring, which would make it harder for families and businesses to borrow. That's because a default would throw into question the value of U.S. Treasury securities, long considered one of the world's safest investments. Many loans and business deals are based on the value of Treasurys, and if their value eroded the impact would be felt broadly.

Because the government is projected to run a $1.5 trillion deficit this year, it must borrow money to cover its obligations, ranging from military spending to interest on existing debt.

Lawmakers have not felt pressure to act yet in part because markets have remained stable, and the yield for U.S. government debt remains low.

Yields on 10-year Treasury notes have fallen from more than 3.7% in early February—when Fed officials and others began warning of catastrophic consequences if the debt limit was breached—to below 3.2%.

If investors had serious concerns about a default, they likely would be selling bonds, which would in turn push up their yields. Bond yields have instead been moving down in part because the economy seems to be slowing. Commodities prices also have tumbled, which holds down inflation and puts downward pressure on bond yields.

If officials get too close to Aug. 2, government officials might have to decide which of the country's creditors to pay and which payments they will suspend or stop.

Treasury officials so far have deflected questions about which creditors would be given priority. Treasury Secretary Timothy Geithner said in a letter to Sen. Michael Bennet (D., Colo.) last week that failing to raise the debt ceiling would lead to a default on obligations "such as payments to our service members, citizens, investors, and businesses."

Debt Limit Reached, U.S. Halts 2 Pension Investments

Treasury Secretary Timothy Geithner said Monday that he will immediately halt investments in two big government pension plans so the government can continue to borrow money. The money that the two pension funds will lose will be replaced when Congress votes to raise the borrowing limit. Geithner has suspended pension payments in the past when Congress has held off raising the debt limit.

May 16, 2011

AP – Treasury Secretary Timothy Geithner said Monday that he will immediately halt investments in two big government pension plans so the government can continue to borrow money.

Geithner informed Congress of his decision in a letter stating that the government had officially reached its $14.3 trillion borrowing limit. He repeated a warning that if lawmakers do not increase the borrowing limit by August 2, the government is at risk of an unprecedented default on its debt.

The debt limit is the amount of money the government can borrow to help finance its operations. The nation has reached its debt limit because the federal government has grown accustomed to borrowing massive amounts of money. The latest estimate is that it borrows 40 cents for every dollar it spends.

Republicans have said they will not vote to raise the borrowing limit until Congress and the White House agree on a plan to reduce the deficit through spending cuts. House Speaker John Boehner last week those cuts should be larger than any increase in the debt ceiling.

The deficit is the difference between what the government spends and what it takes in through taxes and other revenue. The Congressional Budget Office projects that this year's deficit will total $1.4 trillion. That's would nearly match 2009's record imbalance and mark the third straight year in which the federal deficit has exceeded $1 trillion.

Vice President Joe Biden is holding negotiations with lawmakers over the types of deficit-cutting measures that need to be approved to win congressional approval of a higher debt limit.

Even though the government has reached its official borrowing limit, Geithner said unexpected revenue and bookkeeping maneuvers will allow the Treasury to continue auctioning debt for another 11 weeks.

Geithner has suspended pension payments in the past when Congress has held off raising the debt limit. The money that the two pension funds will lose will be replaced when Congress votes to raise the borrowing limit.

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