November 1995

By Vincent Del Giudice

Nov. 8 (Bloomberg) — U.S. Treasury officials blasted today a debt-ceiling bill being advanced by Republican leaders in Congress and expressed only limited confidence that they will be able to raise the $100 billion needed next week to keep the government from defaulting on its debts.

“We see the skids being greased toward default,” a senior Treasury official said. “What we see in the last few days is a congressional decision not to do what’s right by passing a clean debt-limit extension.”

In a background briefing, Treasury officials did not rule out the possibility that they may need to tap a portion of the $42 billion Exchange Stabilization Fund — the same fund used in the Mexican bailout earlier this year — if Congress and the White House fail to agree on an increase in the nation’s $4.9 trillion debt limit before Nov. 15.

In addition, they said they may have to lean on two federal employee trust funds to free up enough borrowing authority so new debt auctions can be scheduled to help pay the government’s bills, officials said at a briefing.

Even with these “extraordinary and unprecedented” actions being considered, a Treasury official said, it’s not absolutely clear that will provide enough money to pay the government’s debts. “The real crunch comes next Wednesday,” the official said, when more than $55 billion in interest and principal on government debt comes due.

Moreover, another $44.4 billion in Treasury bills mature a day later.

Treasury Secretary Robert Rubin tried to reassure retirees by issuing a statement late in the day saying the government will refrain from using Social Security funds if its runs out of borrowing authority.

“Social Security Trust funds will not be used for any purpose other than to assure the payment of Social Security payments,” he said in a statement issued jointly with Social Security Commissioner Shirley Chater.

Earlier in the press briefing, Treasury officials attempted to address one of the issues Republicans have seized upon: The benign reaction among investors in the bond market in recent days. Today, for example, the benchmark 30-year Treasury bond rose 25/32, pushing down the yield almost six basis points to 6.25 percent.

“The bond market has done well because bond market participants have had the conviction that (Treasury Secretary) Bob Rubin was right when he said default was unthinkable and that something would be done — that Congress would take the right kinds of steps (and that) the administration would have the tools to address the problem that arose,” said the Treasury official.

Now, however, due to the “simply outrageous” conditions being considered by Republican lawmakers, “the degree of heat here has increased substantially,” the official said.

Indeed, the bond market rally may also be tied to the prospects of limited supplies, some analysts said. Just today, the Treasury postponed plans to sell $18.75 billion in one-year bills tomorrow. Three-year and 10-year note auctions set for this week have also been delayed.

For his part, House Speaker Newt Gingrich (R-Georgia) shows no hint of backing down.