Skip to comments.Government Officials Scrambling for Debt-Issuance Ideas if Ceiling Not Lifted
Posted on 07/30/2011 3:56:03 AM PDT by Son House
Government officials are scrambling to come up with ways to sell debt even if the nations debt ceiling isnt raised by early next week, though officials are remaining silent on just what course of action they might take, and its unclear if any of the options discussed would be enough to meet the countrys massive borrowing needs, the FOX Business Network has learned.
The issue of how to borrow outside the debt limit emerged during a regularly scheduled, though timely meeting, Friday between officials at the Federal Reserve, the Treasury Department and 20 banks that buy US debt.
Government officials hold meetings with Wall Street dealers prior to bond auctions, like the one that is scheduled to take place on Monday. But this meeting took on special significance since on Tuesday the Treasury is scheduled to run out of money to pay all the nations bills unless the debt ceiling is lifted as part of a budget deal in Washington.
By midday Friday, such a deal remained elusive, which prompted government officials to discuss with Wall Street ways in which the Treasury could raise money if the debt ceiling isnt raised anytime soon. Sources at the meeting said the participants discussed three options, but the one that seemed most plausible involved the issuance of so-called cash management bills, which are short-term IOUs that allow the government to raise money outside the debt limit since these bills are quickly repaid once tax revenues are collected.
Government officials and the Wall Street executives also discussed holding smaller auctions than usual, and only selling bonds when older issues mature so as not to sell debt above the $14 trillion debt limit. Dealers said such a move could be disruptive to the market.
Another option discussed was to sell bonds on a when issued basis, meaning the Treasury sells the bonds to investors, the securities are free to trade and the auctions where money is delivered to the government officially begin when the debt ceiling is finally hiked.
In this scenario the government would be guaranteed the money once the budget impasse ends, but dealers said such a move would be nearly impossible to pull off because the market couldnt price the securities thanks to uncertainty of the timing of when the auction will eventually occur.
A Treasury spokesman said todays meeting allowed Treasury to continue its regularly scheduled conversations and provided an opportunity for all dealers to share their views on Treasury market functioning and the auction calendar in advance of August 2.
Sources who attended the meeting said the Treasury provided no guidance about a course of action, other than to say that the August 2 deadline assigned by Treasury Secretary Tim Geithner is a real one, despite some reports stating that the government wont run out of money until the following week.
One Wall Street executive at the meeting suggested that Treasury repo its portfolio of mortgage-backed securities, which it purchased from Fannie Mae and Freddie Mac during the 2008 financial crisis. In a repo trade, the Treasury would temporarily raise cash by selling the securities and buying them back at a later date. The Treasury holds just under $100 billion of mortgage-backed securities from the bailout of Fannie Mae and Freddie Mac.
Government officials offered no response to the suggestion.
Nobody in DC wants to correlate the rising debt ceiling with declining jobs.
The rising debt ceiling has two consequences....
more regulation ...
to occupy employees in expanding federal bureaucracies...which expand because they have more money and another layer of bureaucrats need their 20 year promotions... Each round of regulatory expansion is the effective equivalent of another targeted tax increase on the object of the regulation.
The rising debt ceiling has demands and expectations of creditors for new elements of revenue raising by the Feds...taxes or fees.
In this strangling environment job creation is simply NOT possible.
In fact the only logical conclusion..can be ..is that the Federal apparatus -initially an asset to the United States..by virtue of its abilities to raise an effective Navy in the late 1700s, and early 1800s to facilitate overseas trade on behalf of the States, has become nothing other than the States greatest liability at this point in time. In the absence of profound regulatory and taxation reform-which is not capable of coming from the same minds that created the problem..we may well be at the end of the line.
For DC to face this fact...means the end of the K St-Congressional Party cycle in DC
Some of those who have owned businesses have learned the hard way that CREDIT can not be used to fund CURRENT EXPENSES.
If it is, the company is in a spiral of debt that will end in bankruptcy.
In effect, it is a ponzi scheme, just using debt instead of equity.
The Federal debt is 7 times what the Federal government takes in in 1 year.
The Federal government spends about 50% more than it takes in every year.
Anyone - Republic or Democrat - who says the “reasonable” thing to do is provide more debt is speaking utter nonsense that 3rd grade arithmetic refutes.
No matter what they say, and no matter what ratings agencies say, in the very near future, anyone who has U.S. dollars will not trade them in for U.S. Treasury debt, because to do so would be to give one’s money away.
There is very little prospect of being able to glean any more in taxes out of the economy. The wealthy and large corporations have bought off all but 22 members of Congress, so they will not have their tax “loopholes” (which are really tax deductions and credits that are completely public information and were passed into law by Congress, including those who rail against them) closed to allow their taxable income to rise. The middle class who is shouldering the heaviest load, relatively, can not afford any more and is also madly calling their Congressman. And the rest are actually receiving money back from the government in exchange for their vote, so no voting changes are coming from that block.
So until spending comes down, in total, real, actual dollars (not some Washington scam talk), to about $2 trillion, there is no way the Federal government can begin to pay back the over $14 trillion that it owes. Spending reductions will not be pretty, but spending will go down. Kind of like a very bad skier - it’s not pretty, but they get down the hill.
The Federal government is on the path the default and we will see all sorts of craziness in the near future, as the gears of the great government giveaway debt ponzi scheme come crashing and grinding to a halt.
This disaster was brought to you by the American big-government idiots of the past 100 years, thank you for watching another episode of “The Collapse of Empires”, and have a nice weekend.
Washington has gone nuts.
We have too much debt, so the answer is to find new ways to borrow?
The loonie birds are running the asylum.
Isn’t this more or less the principle behind check kiting?...
Give all the existing debt holders a 1% haircut. That will raise 1.7 trillion available.
No, kiting is illegal
What we are witnessing is a drug addict trying to get his next fix.
Our goverment is a drug addict and our politicians are the pushers.
This has got stop.