Geopolitical Risks Research

Treasury made an announcement late Mon that will buy it a few more weeks on the debt ceiling but at the expense of state and local governments; in addition to the actions unveiled, plus stronger tax revenues, Geithner now says can get to Aug 2 before breaching; the announcement appeared to give the dollar a boost late Mon and that strength is continuing Tues morning – TSY Sec Geithner sent a letter to Congress late Mon (you can see the full letter here LINK) and said that as of May 6 it would suspend the issuance of State and Local Government Series (SLGS) Treasury Securities.  The action, along w/some others and stronger tax revenues, will help forestall a breach of the ceiling until Aug 2 at the latest (previously Geithner said Jul 8 was the date on which it would start to breach).  However, the move will rob state and local government of a valuable tool to manage their outstanding debt expenses.  The news overall was mixed – while Geithner found a few more weeks, he acknowledged that Congress probably wouldn’t take action by May 16 (the date at which the Treasury will start to bump up against the ceiling) and his action will hurt local government spending.