Here’s a what a rise in the debt limit after a six month impasse looks like in accounting terms:
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The idea of a small rise in the federal debt limit to buy more time after August 2nd for a larger deal is starting to come up quite a lot. For example, the reporting on the Mitch McConnell fallback plan suggests that a $100bn rise in the debt limit would be made available immediately in order to buy time.
The trouble is that as soon as there is any space under the debt limit, the Treasury will be obliged to replenish the government trust funds that it has been borrowing from in order to stay under the limit for the last few months. The law is unambiguous:
Ready for some true Fed balance sheet wonkery? Sit back and enjoy…
The US Treasury has announced today that it will suspend the Supplementary Financing Program (currently $200bn) that it runs to help the Fed. Here is the Treasury statement:
“Beginning on February 3, 2011, the balance in the Treasury’s Supplementary Financing Account will gradually decrease to $5 billion, as outstanding Supplementary Financing Program bills mature and are not rolled over. This action is being taken to preserve flexibility in the conduct of debt management policy.”
The point of all this is to give the Treasury more space to borrow as it waits for Congress to raise the debt ceiling – but it has consequences for the Fed.
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