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Saturday, December 22, 2012

US hits debt ceiling of 16.394 trillion. Treasury start "Extraordinary Measure"

US has hit its official debt limit of 16.394 trillion but not a single main stream media is talking about it.  It is now 16,397,912,865,485 and counting. US treasury now has to start "Extraordinary Measure" to save US from default. US can survive using extraordinary till February but the limit is hit. It like crossing credit limit on your credit card. Maximizing credit card has negative effect on credit score.

So what exactly is done in "extraordinary measures" ?

–Suspending sales of State and Local Government Series Treasury securities–special-purpose Treasurys known as Slugs that state and local governments use to comply with tax rules. The move doesn’t increase headroom under the ceiling, but it stops Treasury from piling on new public debt. This is used for infrastructure project and all the project will be stopped.

–Redemption of existing and suspension of new investments in the Civil Service Retirement and Disability Fund after determining that a “debt issuance suspension period” exists. The action allows the government to redeem Treasurys held by the fund–last time around that worked out to about $12 billion over two months. By law, the fund must be made whole once the debt limit is increased.

–Suspending reinvestment in the Government Securities Investment Fund, or G Fund, a money-market defined-contribution retirement fund for federal employees. Federal employees wouldn’t be affected by the action–Treasury is required to replenish the fund. The maneuver bought Treasury about $130 billion in headroom last year.

–Limiting investments in the exchange-stabilization fund, a reserve account related to foreign-exchange holdings. The government has about $23 billion in securities in the fund.
So they neither resolved fiscal cliff nor raised debt ceiling. Since congress is in recess till December 27th, 2 pm which leaves 28th, and 31st as working day for any resolution. Its impossible to pass anything by then. 

During the summer of 2011, the prospect of default undermined confidence, forced the government to pay additional interest costs and led Standard & Poor’s to strip the U.S. government of its top-notch debt rating.
Expect yet another downgrade in January, 2013. 

1 comment:

Start Business in Delhi said...

Very informative, keep posting such good articles, it really helps to know about things.

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