cooking the books

["Ian Murray" <seamus2001@xxxxxxxxx>]

May 14, 2002
Treasury Shifting Funds to Dodge Default on National Debt
By THE ASSOCIATED PRESS
Filed at 1:20 p.m. ET


WASHINGTON (AP) -- The Bush administration plans to shift billions of
dollars of civil service retirement funds to non-interest-bearing
accounts this week in a move to prevent the federal government from
defaulting on the national debt.

The Treasury Department's action, announced Tuesday, would free up room
for more for government borrowing. Peter Fisher, Treasury's
undersecretary for domestic finance, said the juggling of funds could
start on Wednesday or Thursday.

The move is necessary because Treasury's request to extend the
government's authority to borrow has been mired in a political fight on
Capitol Hill. Lower than expected tax payments are putting a big squeeze
on the government's cash flow.

Treasury Secretary Paul O'Neill has repeatedly asked Congress to boost
the debt limit by $750 billion. The limit now stands at $5.95 trillion.

The juggling of federal retirement accounts will not harm federal
employees' retirement nest eggs, Treasury officials said.

They said the lost interest payment will be made up in coming months.

Treasury's latest action to avoid breaking the debt limit involves
temporarily shifting money from both the government securities retirement
fund and the civil service retirement and disability fund into
non-interest bearing accounts.

Treasury dodged a default in April by temporarily shifting funds from the
government securities retirement account.

Though Treasury is shifting some funds to avoid hitting the debt ceiling
for a second time this year, those maneuvers won't be useful in late
June. That's because the government will have to make $67 billion in
semiannual interest payments to Social Security and other trust funds on
June 28 -- an amount that exceeds Treasury's arsenal of maneuvers.

``The Treasury faces obligations in late June that, on the basis of
current projections, cannot be surmounted without an increase in the
statutory debt limit,'' Treasury said in a statement Tuesday.

Government payments to Social Security recipients in July also could be
disrupted. ``Lack of certainty ... will challenge the Treasury's ability
to ensure timely processing of payments to Social Security and other
beneficiaries,'' Treasury's statement said.

Without the shifting of funds, Treasury would not be able to borrow the
money it will need in coming weeks to keep the government operating,
including making payments on debt that is coming due.

If it missed those payments, the government would be technically in
default on the $5.95 trillion national debt. That would cast a cloud over
U.S. securities, now considered the world's safest investment, and would
mean the government would be forced to pay billions of dollars in higher
interest payments on the national debt in future years.

``We're doing everything in our power not to have that happen,'' Fisher
said.

Economists and other experts don't think the government will default on
the debt because they believe Congress will eventually raise the debt
ceiling.

``It's not a question of whether we are going to do it or not. It's just
a question of how close to the cliff we're going to run before we do what
we know we need to do,'' O'Neill said last week.

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