WASHINGTON - The U.S. Treasury Department will begin taking steps to delay hitting the government's $16.4 trillion borrowing limit on Dec. 31.
Treasury Secretary Timothy Geithner said in a letter Wednesday to congressional leaders that the department will use accounting measures to save approximately $200 billion, which could keep the government from reaching the limit for about two months.
The move comes as President Barack Obama and the Republican congressional leadership are locked in negotiations over how to avoid a series of tax increases and spending cuts, known as the "fiscal cliff," that are scheduled to take effect in the new year.
Obama has sought to include an increase in the borrowing limit in the talks. But Speaker John Boehner and other Republican leaders have demanded concessions in return. The negotiations hit a stalemate last week. Obama and lawmakers are returning to Washington this week to resume talks.
Geithner says the negotiations over tax and spending policies make it difficult to predict how long he can delay reaching the borrowing limit.
The borrowing limit is the amount of debt the government can pile up. The government accumulates debt two ways: It borrows money from investors by issuing Treasury bonds, and it borrows from itself, mostly from Social Security revenue.
In 2011, Congress raised the limit to nearly $16.4 trillion from $14.3 trillion. Three decades ago, the national debt was $908 billion. But Washington spent more than it took in, and the debt rose steadily — surpassing $1 trillion in 1982, then $5 trillion in 1996. It reached $10 trillion in 2008 as the financial crisis and recession dried up tax revenue and as the government spent more on unemployment benefits and other programs.
In August 2011, the rating agency Standard & Poor's stunned the world by stripping the U.S. government of its prized AAA bond rating because it feared that America's dysfunctional political system couldn't deliver credible plans to reduce the federal government's debt. S&P decried American "political brinksmanship" and concluded that "the differences between political parties have proven to be extraordinarily difficult to bridge."
A year and a half later, the two political parties are still as deadlocked as ever.
Despite S&P's warnings and the political stalemate, investors still want U.S. Treasurys. Given economic turmoil in Europe and uncertainty elsewhere, U.S. government debt and U.S. dollars look like the safest bet around.
That is why the interest rate, or yield, on 10-year Treasury notes has fallen from 2.58 Aug. 5, 2011 to 1.75 per cent Wednesday.