The U.S. Treasury Department announced today that the U.S. will reach its $16.4 trillion debt ceiling on Dec. 31, 2012, unless immediate steps are taken to avoid this grim milestone.
Treasury Secretary Timothy Geithner in a letter to congressional leaders Wednesday suggested his department use certain accounting measures that would save $200 billion in government spending, thereby keeping the government within its borrowing limit until at least February, 2013.
“The government is facing a crunch on the debt ceiling because the issue has become ensnarled in talks to avoid some $600 billion in tax hikes and spending cuts due to begin in early January. Failing to raise the debt ceiling could cause the government to default on its debt,” Reuters notes.
“To cut government spending and delay bumping up against the debt ceiling, the Treasury will suspend issuance of state and local government series securities — known as ‘slugs’ — beginning on Dec. 28,” the report adds.
Surprisingly enough, Treasury also said it would stop investing in government retirement funds.
“These extraordinary measures … can create approximately $200 billion in headroom under the debt limit,” Secretary Geithner’s letter reads.
The letter also notes that should the U.S. go over the so-called “fiscal cliff,” a combination of tax increases and across-the-board spending cuts set to take effect next year unless Congress agree on a budget plan, that would actually give Treasury more time to avoid exceeding the debt limit.
“Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer,” said Geithner.
Because suspending the issuance of “slugs” has been used before to help the U.S. government keep within its debt limit, some analysts are hopeful it will work again.
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The Associated Press contributed to this report. Featured image Getty Images.