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Wednesday, October 16, 2013

Banning 'extraordinary measures' could reduce default risk -- By Joseph Lawler, The Washington Examiner

Photo - President Obama and Treasury Secretary Jack Lew have objected to a measure that includes language banning the Treasury from using "extraordinary measures" to create headroom under the debt ceiling in the future. (AP File)Republicans are trying to restrict the Treasury's ability to maneuver under the debt ceiling with a provision that could, counterintuitively, have the effect of reducing the possibility of a default in the future.

House Republicans are considering legislation to raise the debt ceiling and fund the government that includes language banning the Treasury from using "extraordinary measures" to create headroom under the debt ceiling in the future.

Treasury Secretary Jack Lew has been using such measures, which include issuing IOUs to government employee retirement funds and shifting around government accounts, since the debt reached the statutory limit of $16.7 trillion in May.

Lew has said that he will run out of the measures on Thursday, at which point he will be left with only cash and incoming revenues with which to pay the country's bills.

His projection has been wrongly interpreted by many in the government and media as a hard deadline for avoiding a default on Treasury obligations. The Treasury likely has enough funds on hand to meet all its bills through Oct. 22 at the earliest or Nov. 1 at the latest, according to Bipartisan Policy Center's projections.

Confusion over when exactly the government faces default is hurting the Obama administration's credibility, former Obama economic adviser Austan Goolsbee said last week. Goolsbee called it a "fuzziness problem": The public doesn't understand the timing of the default threat, even if they believe it's a real threat.

Removing the use of extraordinary measures might clear up that fuzziness.

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