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US reaches debt ceiling, again

| May 18, 2011

The U.S. government has reached the $14.3 trillion debt limit, and according to the U.S. Treasury Department, “extraordinary measures to buy additional time will be exhausted by about Aug. 2.” For the U.S. economy, a failure to increase the debt ceiling could, according to a letter written by Treasury Secretary Timothy Geithner, prove to be “catastrophic.”

The debt limit is the total amount of money that the U.S. government is authorized to borrow to meet its existing legal obligations, including, the Treasury explained, Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds and other payments. The debt limit, the Treasury also said, “does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congress and presidents of both parties have made in the past.”

The numbers show that Congress will need to come up with roughly $738 billion to make up for intended borrowing throughout the remainder of the fiscal year ending Sept. 30, according to the Treasury, which could be done by reducing the budget by 40 percent, raising taxes or defaulting on payments to investors.

While Geithner explains that by “catastrophic,” he means the U.S. economy would enter another recession, the value of the U.S. dollar would fall and the country would fall into another financial crisis. This isn’t the first time, however, the U.S. has been required to raise the debt ceiling. According to the Treasury, Congress has taken action to raise the debt ceiling 78 separate times since 1960, by permanently raising, temporarily extending or revising the definition of the debt limit. This has happened 49 times under Republican presidents and 29 times with Democratic presidents.

To give the U.S. “headroom” for a few extra months, Geithner has suspended debt issuance to the Civil Service Retirement and Disability Fund, allowing the Treasury to use those funds. Geithner also suspended payments to the Federal Employees’ Retirement System Thrift Savings Plan.

Given the evidence that shows the Congress will most likely raise the debt ceiling, there might be little to worry about for investors seeking or counting on government funds to finance a renewable energy project, but the call by Geithner for Congress to take action could create some political wrangling that would create large budget cuts—cuts that could conceivably effect renewable energy.

“As our politicians go to discuss this, I think they need to find solutions that align the interests of the government in terms of growing renewable energy,” Mark Warren, partner for Ascendant Partners, an agribusiness and renewable energy consulting firm, said on possible negotiations by Congress to cut the budget if the debt ceiling is raised. “But,” he added, it is important to find “solutions that have more of a budget neutral position and focus on providing support to the private industry to drive this (renewable energy) forward.”

For Warren, the only way in which the U.S. can have stability in the renewable energy sector is to have stability in RFS2 policy. “Without that, with the back and forth, you aren’t going to incent the capital that needs to come in.” Warren isn’t the only one calling for Congress to leave the RFS2 alone. In a letter to Congress, the Advanced Biofuels Association, along with other leading groups, including the Renewable Fuels Association, Advanced Ethanol Council, American Coalition for Ethanol, and the Biotechnology Industry Organization, all said in a joint statement that they “urge Congress to reject attempts to reduce, waive or eliminate the requirements of [RFS2]. This policy is essential to securing the capital investments needed to bring new biofuels technologies to commercialization.”

Even though Geithner and the Treasury have found measures that will buy the U.S. time before all of the U.S.’ “full faith and credit” has been ruined, the treasury has also issued a statement on what the department considers the Myth vs. Facts regarding the debt limit. To view the Myth vs. Facts document, click here.

 

 

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