With US At Debt Ceiling, Geithner Leans on Pensions

(May 16, 2011) — As the debt limit of the United States has reached its peak, the Treasury will start tapping into federal pensions to free up the nation’s borrowing capacity.

Treasury Secretary Timothy Geithner today told congressional leaders that the federal government has hit its “debt ceiling” of $14.3 trillion. As a result, he said he would begin turning to pension funds to increase the nation’s borrowing capacity. According to Treasury officials, the US Treasury will issue $72 billion in bonds and notes.

In order to give the US Treasury additional capacity to borrow, Geithner said he would cease investments in two government retirement funds. Geithner said he started a “debt issuance suspension period” for the Civil Service Retirement and Disability Fund, while suspending the daily reinvestment of Treasury securities held by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan. “I will be unable to invest fully” in the civil service retirement and disability fund and the government securities investment fund, he said in a letter to congressional leaders.

While skeptics have asserted that a failure to increase the debt ceiling would not significantly harm the economy, Geithner has continued to advocate the necessity of raising the limit, saying that a default on the federal debt would hurt the economy.

In a letter by Geithner to Sen. Michael Bennet (D-Colo.) on Friday, the Treasury secretary described the implications of defaulting on Treasury debt, noting that delaying an increase of the debt ceiling could have a long-term impact on the economy.

Geithner wrote: “A default on Treasury debt could lead to concerns about the solvency of the investment funds and financial institutions that hold Treasury securities in their portfolios, which could cause a run on money market mutual funds and the broader financial system — similar to what happened in the wake of the collapse of Lehman Brothers. As the recent financial crisis demonstrated, a severe and sudden blow to confidence in the financial markets can spark a panic that threatens the health of our entire global economy and the jobs of millions of Americans.”

Geithner has reiterated his pleas to Congress. “I again urge Congress to act to increase the statutory debt limit as soon as possible,” he said.