Dodging debt limit, Treasury borrows $15 billion from currency-rigging fund

Section:

Treasury Department Moves to Avoid Debt Limit

By Martin Crutsinger
The Associated Press
via The Washington Post
Monday, March 6, 2006

http://www.washingtonpost.com/wp-
dyn/content/article/2006/03/06/AR2006030600635_pf.html

WASHINGTON -- Treasury Secretary John Snow notified Congress on
Monday that the administration has now taken "all prudent and legal
actions," including tapping certain government retirement funds, to
keep from hitting the $8.2 trillion national debt limit.

In a letter to Congress, Snow urged lawmakers to pass a new debt
ceiling immediately to avoid the nation's first-ever default on its
obligations.

"I know that you share the president's and my commitment to
maintaining the full faith and credit of the U.S. government," Snow
said in his letter to leaders in the House and Senate.

Treasury officials, briefing congressional aides last week, said
that the government will run out of maneuvering room to keep from
exceeding the current limit sometime during the week of March 20.

Snow in his letter notified lawmakers that Treasury would begin
tapping the Civil Service Retirement and Disability Fund, which
Treasury officials said would provide a "few billion" dollars in
extra borrowing ability.

Treasury officials also announced that on Friday they had used the
$15 billion in the Exchange Stabilization Fund, a reserve that the
Treasury secretary has that is normally used to smooth out volatile
movements in the value of the dollar in currency markets.

Treasury has also been taking investments out of a $65.3 billion
government pension fund known as the G-fund.

Officials have said that once the debt limit is raised, the
investments taken out of the pension funds would be replaced and any
lost interest payments would be made up. The formal title for the G-
fund is the Government Securities Investment Fund of the Federal
Employees Retirement System.

Democrats hope to use the upcoming congressional debate over raising
the debt limit to highlight what they see as the failings of the
administration's economic program with its emphasis on sweeping tax
cuts.

An actual default on the debt, a situation when the government
misses making payments to current bondholders, is a doomsday
scenario considered highly unlikely given what it would do to the
government's credit rating.

It is expected that after intense debate, Congress will approve an
increase in the current $8.18 trillion debt limit by perhaps $781
billion.

But Rep. Charles Rangel, the top Democrat on the House Ways and
Means Committee, said Monday that any further increase in the debt
limit should be tied to legislation that would get future deficits
under control.

"Simply raising the limit on George W. Bush's credit card and
crossing our fingers won't solve anything," Rangel, D-N.Y., said in
a statement. "Any long-term debt limit increase must be accompanied
by a serious effort to bring our budget back to the balance we
achieved under the Clinton administration."

Treasury Department spokesman Tony Fratto said it was critical for
Congress to act before leaving for a spring recess on March 17. He
said Snow planned a number of meetings with lawmakers this week to
discuss the urgency of taking action.

The administration has sent Congress a budget that on paper would
cut the deficit in half by 2009, the year President Bush leaves
office.

But Democrats contend the administration met its deficit-reduction
goal only by leaving out major spending items such as the full costs
of the Iraq war. They say the deficit will not improve unless Bush
abandons his effort to make his first-term tax cuts permanent.

Sen. Max Baucus, D-Mont., said last week that under President Bush
the total of the deficits has increased by $3 trillion, a 40 percent
increase from where the national debt -- the total of previous
deficits -- stood when Bush took office in January 2001.

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