U.S. Treasury could have less breathing room under 2014 debt ceiling

Reuters

By Jason Lange

WASHINGTON, Oct 18 (Reuters) - The Obama administration wasable to scrape up against the government's debt ceiling for fivemonths this year before it came to the brink of default. Itcould have less breathing room in 2014.

Obama on Thursday signed into law a bill that would suspenda $16.7 trillion cap on the national debt until early February,when it will reset to whatever level the debt has reached.

Absent a decision to raise it again, the Treasury Departmenthas tools to manage its cash a little longer before it startsmissing payments.

The question is how long.

This year, the Treasury bumped up against the debt ceilingin May but was able keep under it for another five months bydoing things like stopping investments in some pension funds forfederal workers. These steps are known in Washington as theTreasury's "extraordinary measures."

They give the Treasury a buffer against an economicallydamaging default.

When the debt cap is reset next year, several respectedbudget experts think the Obama administration might run out ofwiggle room by mid-March.

"Extraordinary measures are unlikely to last long," ShaiAkabas and Brian Collins, analysts at the Bipartisan PolicyCenter think tank in Washington, wrote in a report on Friday.

That's because the new debt ceiling date falls at a timewhen the Treasury is sending out lots of tax refund checks, theysaid, adding that they expect the cap to reset at $17.3trillion, reflecting about a $600 billion increase in U.S. debt.

The Treasury was not immediately available for comment.

Alec Phillips, an economist at Goldman Sachs in Washingtonwho tracks fiscal issues for the bank, also thinks the Treasurywill probably run out of room by mid-March.

"However, if revenues are higher than expected or taxrefunds are lower than expected, the date could be pushed(out)slightly further," he said in a report.

If the administration were able to stretch the borrowingcapacity until the end of March, there is a chance that adividend payment from government-controlled mortgage giantFreddie Mac could give Treasury even more breathing room.

Freddie Mac has operated under government stewardship sinceit was bailed out by taxpayers during the financial crisis, andthe firm is expected to make a roughly $30 billion payment tothe Treasury in the coming quarters.

If the payment came at the end of the fourth quarter, beforethe debt limit is reset, it would have no impact on the amountof time Treasury could squeeze out of extraordinary measures,Phillips said. But if it came at the end of March, it could givethe administration an extra buffer against default.

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