Thursday, January 27, 2011

To Raise or Call a Bluff

The Treasury is urging (begging) Congress not to toy with our country’s cherished AAA bond rating and to raise the debt limit soon.  Current projections have the Treasury reaching the statutory limit within the next 30-60 days.  Once that point is reached, the Treasury cannot issue new bonds to raise cash.  It would have to cash-flow and prioritize spending, or default.

The debt ceiling is Congress’s check on the executive branch.  The Treasury manages the country’s financial matters, issuing bonds in the capital markets to raise cash to fund operations.  This cash pays federal employees salaries, including Soldiers and Marines; it pays for interest on outstanding debt; and it pays doctors for treating seniors receiving care under Medicare.  Because the government spends more (much more) than it takes in, it issues bonds for cash.  Without this ability, it would have to operate much like we do – within our means.  The nerve!

So, Treasury is up on Capitol Hill, hat in hand, urging congressional leaders not to play politics with the debt level, because Armageddon awaits should Congress not act.  My money says Congress will blink and raise the debt limit, but I wonder what would really happen if they didn’t’.  Would we default or would Treasury make the necessary adjustments?

No comments:

Post a Comment