January 01, 2006

The Year of Red Ink

Actually the past few years the red ink has flowed freely. So much so that apparently they are running out and need more red ink:

Treasury Secretary John Snow has warned that unless Congress raises the national debt limit, the US government will run out of cash to finance its daily work in two months.

In a letter to Senate leaders Thursday, Snow said the statutory debt limit imposed by Congress of 8.184 trillion dollars would be reached in mid-February and the government would then lose its borrowing power.

"At that time, unless the debt limit is raised or the Treasury Department takes authorized extraordinary actions, we will be unable to continue to finance government operations," said the letter, seen by AFP.

Snow warned that even if the Treasury took "all available prudent and legal actions" to avoid breaching the ceiling, "we anticipate that we can finance government operations no longer than mid-March".

"Accordingly, I am writing to request that Congress raise the statutory debt limit as soon as possible."

None of this, of course, is unexpected. The odd part of the story was this:

Once the US government hits the ceiling, it comes under threat of defaulting on its debts and can lose the ability to raise future credit on the capital markets.

Snow underlined that the "full faith and credit of the United States" was a unique selling point on the markets.

"A failure to increase the debt limit in a timely manner would threaten this unique and important position," he wrote in his letter.

So he is saying we are servicing the national debt by borrowing more money to pay back the money we already owe. Again, not really a surprise. The odd part is that the treasury secretary (the country's CFO) doesn't seemed concerned about it. He's just concerned they might not be able to dig the country deeper into debt. He need not be concerned though. I have every confidence this President and congress will be able to pull it off.

Posted by thom at January 1, 2006 11:42 AM
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