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.

The world’s youngest nation falters: keeping the peace in South Sudan

Source: United Nations

Two and a half years after gaining independence from Sudan, the newly formed nation of South Sudan has erupted into violence that could potentially lead to civil war.

Tensions among the ethnic Nuer and Dinka groups have recently escalated and there have been reports of widespread violence and killing across the country. Ongoing political disputes are at the root of the current unrest. Media reports indicate the former Vice President, Riek Machar (an ethnic Nuer who was dismissed in July 2013), attempted a coup against President Salva Kiir (an ethnic Dinka) and has allegedly taken control of key parts of the country.

Ballistic missile defence and Australia

Image source: Wikimedia commons

During the Australia-US Ministerial Consultations (AUSMIN) in Washington DC on 20 November, ballistic missile defence (BMD) was again raised as a specific area of potential further cooperation, having also been discussed at the preceding three meetings. The concept of BMD is not new, with initial research and development by the US Army beginning as early as 1945. Since then, Australia has increasingly become well-positioned to actively support the US-led BMD program, in concert with other regional allies such as Japan and South Korea. This article summarises what BMD is, and the prospects for Australia’s future contribution to the program.

Al-Shabaab: links to background and analysis

 

Image source: Wikimedia Commons user Ingoman

It has been widely reported that the Somali militant group al-Shabaab has claimed responsibility for the attack on a Nairobi shopping mall on 21 September 2013 which cost at least 62 lives. This FlagPost provides information on the listing of al-Shabaab as a terrorist organisation in Australia and other countries, and links to publicly available information on the organisation.

US Trafficking in Persons Report 2013

On 19 June, John Kerry, US Secretary of State, released the Trafficking in Persons (TIP) Report for 2013.

Each year since 2001, the Office to Monitor and Combat Trafficking in Persons in the US State Department has produced a legislatively mandated report outlining major trends and issues in combating human trafficking and providing country by country analyses and ratings. The 2013 Report assesses 188 governments, including the United States, on their compliance with minimum standards set out in the Trafficking Victim Protections Act 2000 (TVPA).  As the 2011 Report noted, the TVPA standards are ‘largely’ (though not entirely) consistent with the framework for addressing trafficking established by the Protocol.

Latest US climate Bill follows Australian lead

The US seems to be following in the footsteps of Australia, at least in terms of climate policy. Last week, Senators Sanders and Boxer introduced into Congress a Bill that establishes a carbon price. Like Australia’s Clean Energy Act, the US’s proposed Climate Protection Act would see the majority of carbon tax revenue flowing back to households to assist with rising energy prices. Also proposed, and comparable to Australia’s Clean Energy Finance Corporation, is a $500 billion program to co-invest in, or provide guarantees for, energy efficiency and renewable energy projects.

Republican presidential nomination process

Republican Party Presidential Primaries
results by counties
Source: Wikimedia

The next United States Presidential election will be held on 6 November 2012. This year focus is on the Republican Party presidential nomination process as President Obama has announced his intention to seek the Democratic Party presidential nomination.

The presidential candidate for the Republican Party will have to accumulate at least 1144 delegate votes out of the 2286 on offer at the various primaries and caucuses from January to June this year to win the nomination at the Republican National Convention (27–30 August 2012). The latest primary, held in Illinois, was declared on 21 March 2012, with former governor of Massachusetts, Mitt Romney taking the primary with 46.7 per cent of the vote bringing his delegate count to 558*. Former Senator for Pennsylvania Rick Santorum has been making an unexpected and significant showing having amassed 252* delegate votes after wining 35 per cent of the Illinois primary.