U.S. Will Hit Debt Limit On December 31, 2012 (Tim Geithner's Letter to Congress)

Treasury Secretary Tim Geithner WatchesSenate
Vote on Debt Ceiling Bill in 2011 (Flickr)
Wow, no wonder the $VIX spiked today. When last year's debt ceiling bill ('Budget Control Act') "failed to hit S&P's deficit reduction target of $4 trillion," S&P downgraded the U.S.'s debt rating to 'AA+'. The S&P 500 then crashed and Treasuries rallied. Credit rating agencies are still warning about downgrades.

Here is Treasury Secretary Tim Geithner's letter to Congress today (sources: PDF, Treasury.gov blog):

December 26, 2012

The Honorable Harry Reid

Majority Leader

United States Senate

Washington, DC 20510

Dear Mr. Leader:

I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.

These extraordinary measures, which are explained in detail in an appendix​ to this letter, can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months. However, 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. At this time, the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain. If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures. Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer.


Timothy F. Geithner

Identical letter sent to:

The Honorable John A. Boehner, Speaker of the House

The Honorable Nancy Pelosi, House Democratic Leader

The Honorable Mitch McConnell, Senate Republican Leader

cc: The Honorable Dave Camp, Chairman, House Committee on Ways and Means

The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and Means

The Honorable Max Baucus, Chairman, Senate Committee on Finance

The Honorable Orrin Hatch, Ranking Member, Senate Committee on Finance

All other Members of the 112th Congress

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