As the fiscal cliff looms, another component to the debate takes center stage. Treasury Secretary Timothy Geithner said yesterday in a letter to Majority Leader Harry Reid that the U.S will reach its debt limit on December 31st and will have to take extraordinary measures or ‘would otherwise default on its legal obligations’.
The debt ceiling currently stands at $16.394 trillion.
We thought now would be a good time to re-post the link to a 3 minute satirical short film called Debt Limit – A Guide to American Federal Debt Made Easy, we originally highlighted in our blog this past February. Putting our national debt into perspective, the video examines how it would apply pro-rata to just one family. In its own way the point is highlighted that we have tough choices to make, but unfortunately these decisions continue to be put off. It is worth the 3 minutes. Additionally, The Treasury Secretary’s letter is copied below.
December 26, 2012 The Honorable Harry Reid Majority Leader United States Senate Washington, DC 20510
Dear Mr. Leader:
I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.
These extraordinary measures, which are explained in detail in an appendix to this letter, can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months. However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures. At this time, the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain. If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures. Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer.
Timothy F. Geithner