Happy New Year! Debt limit to be reached on New Year's Eve
Now comes the scare tactics from Treasury.
Treasury Secretary Timothy Geithner warned Congress on Wednesday that the nation will hit its debt ceiling on New Year's Eve - but that the administration will again take a series of so-called extraordinary measures to hold off default.
In a letter released Wednesday, Geithner said the extraordinary measures by the Treasury Department will give the government about $200 billion of breathing room, which would typically give the nation about two more months until it faces default on its legal obligations.
But Geithner said because of the unresolved fiscal cliff, this situation was different.
"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," Geithner wrote.
In fact, with tax increases and mandatory spending cuts set to kick in as part of the fiscal cliff, Treasury may be able to hold off on hitting the debt limit for a longer period because the government would have more revenue and less spending.
The current debt limit is $16.4 trillion. Earlier in the fiscal-cliff negotiations, President Barack Obama proposed a permanent debt ceiling increase not accompanied by spending cuts. But that was a nonstarter with Hill Republicans, who see the debt ceiling as leverage to enact more reductions in the federal budget and reform major entitlement programs.
Congress went to the eleventh hour during the last battle to raise the debt ceiling in summer 2011, a nasty and drawn-out battle that led to the first-ever downgrade of the nation's AAA credit rating.
Those "extraordinary measures" are just accounting gimmicks - which, when you think about it, isn't so extraordinary after all.
If Geithner ran the Treasury as private sector CEO's must run their businesses, he would have been in jail by now. This applies to all Treasury Secretaries since the 60's when accounting gimmicks really began to be used to hide the true deficit.
The typical American household would have paid nearly all of its income in taxes last year to balance the budget if the government used standard accounting rules to compute the deficit, a USA TODAY analysis finds.
Under those accounting practices, the government ran red ink last year equal to $42,054 per household - nearly four times the official number reported under unique rules set by Congress.
A U.S. household's median income is $49,445, the Census reports.
The big difference between the official deficit and standard accounting: Congress exempts itself from including the cost of promised retirement benefits. Yet companies, states and local governments must include retirement commitments in financial statements, as required by federal law and private boards that set accounting rules.
The deficit was $5 trillion last year under those rules. The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government's books.
Now that's what I call "extraordinary."