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Tuesday, January 17, 2012 - 15:48

US Treasury Takes Another Step Toward $1.2T Higher Borrowing

WASHINGTON (MNI) - As the House of Representatives prepares its objection -- already made irrelevant by the prospective approval of the Senate -- the Treasury Department Tuesday advanced another step toward an additional $1.2 trillion in borrowing power, using money otherwise to be invested in a government employees' retirement fund.

In a letter to every member of Congress, Treasury Secretary Timothy Geithner delivered a short but required notification that cash is now being diverted from investment in the government employee's retirement "G Fund" to help pay for government operations.

Like the use of the Treasury's Exchange Stabilization Fund underway for weeks, the Treasury's use of "G Fund" money postpones any breach of the $15.194 trillion statutory debt limit.

The letter said that come Jan. 27, the $1.2 trillion in additional borrowing power will kick in, barring a congressional joint resolution of disapproval. Since the Senate is still controlled by Democrats, the "joint" disapproval is impossible, despite the vote by the House due Wednesday.

The arrangement was made in the Budget Control Act passed late last year only after weeks of congressional paralysis triggered Standard and Poor's first downgrade of the U.S. sovereign debt rating.

A revisit of the paralysis is expected for early 2013 unless the November elections place both Houses in control of the same political party. It is then that more Treasury "extraordinary measures" will run out and the debt limit will once again be reaching a "drop dead" date, requiring some congressional action.

The Budget Control Act represented an agreement to put the battle beyond Election Day.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$,MGU$$$]

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