Bumping its head on the ceiling - the US Treasury and extraordinary measures.

The US Government debt ceiling is currently suspended, but will be re-instated on 8 February 2014 (Saturday). When the debt ceiling is reached, the US Treasury will once again face a situation where it has two conflicting objectives – to honour the US Government’s financial commitments, and to not issue new debt. A small number of ‘extraordinary measures’ can be used in the short term, but they aren’t sustainable solutions. The temporary ‘headroom’ they provide below the debt ceiling will likely only last until June at the latest, and possibly much less. Even the potential for default has an impact on borrowing costs, and the US Treasury said ‘A default would be unprecedented and has the potential to be catastrophic’.

On 16 October 2013 the United States Congress passed legislation to end the Government shutdown and temporarily remove the debt ceiling (the Continuing Appropriations Act, 2014). The debt ceiling is a legislative restriction that does not limit spending, but restricts the US Treasury’s ability to borrow (see this Flagpost for more background). On 8 February the debt ceiling will be re-instated at a higher level (to match the additional debt issued while the ceiling was suspended, but no higher). 

If Congress does not vote to raise the debt ceiling, the US Treasury will have two conflicting obligations – paying the bills, and not borrowing. In recent comments the US Treasury Secretary noted, ‘Even though the House and Senate approved a budget … they did not yet provide the borrowing authority to pay for the spending commitments they made’. 

In the short term, the US Treasury can resort to ‘extraordinary measures’. These are strategies (legal, and used previously when the debt ceiling was reached) that postpone default for a short period, but aren’t sustainable solutions. 

• The US Treasury can stop re-investing the earnings of specific government retirement funds. The US Treasury has the authority to not re-invest earnings from (or contributions to) two retirement funds - the 'G Fund', and the Civil Service Retirement and Disability Trust Fund. Once the debt ceiling is lifted the funds must be repaid in full, to restore them to the position they would have otherwise been in (including interest earnings). These measures are expected to provide about $170 billion in headroom under the debt ceiling.
• The US Treasury can use assets in the Exchange Settlement Fund (approximately $20 billion in headroom).
• The US Treasury Secretary also recently announced that the sale of State and Local Government Series (SLGS) securities would be suspended. These securities are issued by the US Treasury to help state and local governments comply with tax regulations; the suspension may cause some disruption for those organisations.
• Other measures have been used previously, including swapping US Treasury debt for debt issued by the Federal Financing Bank (which can issue up to US$15 billion of debt that is exempt from the debt limit). A range of factors mean that these measures are less useful in this situation. 

These extraordinary measures provide a short term solution to enable the US Treasury to continue paying its bills, although how long they will last is uncertain. In the long run the deficit run by the US Government (higher expenses than revenue) means that new debt needs to be issued. Material from the US Treasury, US Congressional Research Service, the US Congress Government Accountability Office, and the Bipartisan Policy Analyis Centre provides more detail on extraordinary measures used in previous situations when the debt ceiling was reached.
Chart data from: The US Treasury Monthly Statement of Public Debt.

Australia's current debt position - December 2013 update

Here we present a snapshot of Australia’s current debt position and how it has changed since the previously published articles on Australia’s debt position. This update provides the latest available data on Australia’s level of debt for both the public and private sectors in gross and net terms, and compares it with previously published data. For definitions of gross and net debt the reader is referred to the Library’s earlier Flagpost titled Australia’s current debt position from April 2011.

Has the United Kingdom sold their student debt?

Image source: Wikimedia commons

On a recent Q&A program Education Minister Christopher Pyne, in response to a question about selling HECS debt, stated: ‘Britain have sold their HECS debt as an asset and we should investigate whether that is a sensible move for us to do so.’ This Flag Post looks at the UK experience of selling some of their student loan; of a 2007 proposal to sell more that did not proceed and of recent proposals to again sell part of their student debt asset.

Australia's current debt position - update June 2013

This Flagpost article aims to present Australia’s current debt position and how it has changed since prior Flagposts on Australia’s debt position. This Flagpost updates the latest available data on Australia’s level of debt for both the public and private sectors in gross and net terms, and compares it with previously published data. For definitions of gross and net debt the reader is referred to the Library’s earlier Flagpost titled Australia’s current debt position.

Australia’s current debt position – update July 2012

In recent times a lot has been spoken about Australia’s debt level. This was no more evident than in the lead up to the last Federal election where it seemed to dominate debate. This article updates the data published in an earlier FlagPost titled Australia’s current debt position. I therefore intend in this article to report the latest available data on Australia’s level of debt for both the public and private sectors in gross and net terms. For more information on gross and net debt the reader is referred to the earlier FlagPost.

Australia's current debt position

The Parliamentary Library has published an update on Australia’s debt levels—please see Australia’s current debt position – update July 2012.

In recent times a lot has been spoken about Australia’s level of debt. This was no more evident than in the lead up to the last Federal election where it seemed to dominate debate. Terms like net and gross debt were thrown around with no real understanding of what these terms actually mean. Therefore, in this article I aim to not only report on Australia’s current debt situation, both public and private, but also shed some light on what is actually meant by these terms.