Debt Causes U.S. Treasury to Suspend Reinvestment in Exchange Fund. Last Stopgap Measure Taken before Default

Maybe Old Glory should be flying at half mast?

The U.S. Department of the Treasury today announced that it had take the final stopgap measure to keep the United States under its legal debt limit and prevent a default on its debt. In a statement released after the stock markets closed, Jeffrey Goldstein, Under Secretary for Domestic Finance, said that Treasury will suspend reinvestment of the Exchange Stabilization Fund.

The fund is a crucial financial tool because it includes purchasing or selling foreign currencies to stabilize international financial markets and thereby allegedly prevent damage to U.S. exports and the national economy. Most recently the fund was used to sell Yen and help the Japanese economy while U.S unemployment remained a national, man-made disaster.

The U.S. reached the debt limit on 16 May 2011, but the Treasury Department had used three previous measures to temporarily extend its ability to meet the nation’s obligations.  Those measures were suspending issuance of State and Local Government Series (SLGS) Treasury securities; declaring a “debt issuance suspension period” of the Civil Service Retirement and Disability Fund (CSRDF); and suspending reinvestment of the Government Securities Investment Fund (G Fund).

“Today, as previously announced, the Treasury Department will suspend reinvestment of the Exchange Stabilization Fund, the last of the measures available to keep the nation under the statutory debt limit.  In order to prevent a default on the nation’s obligations, Congress must enact a timely increase of the debt ceiling,” Goldstein said.

Automakers had no immediate comment, but the uncertainty surrounding the effects of a default on U.S. debt – potentially  turning the “almighty dollar” into a third world currency – has  left executives cautious about predicting sales for the remainder of the year. U.S. sales declined in June for the second straight month.

Worrisome was the decline in the seasonally adjusted annual selling rate (SAAR) to an anemic 11.45 million light vehicles, the lowest it has been in more than a year. Retail sales dipped to a mere 9 million units. (See also U.S. Auto Sales Decline in June as Shortages and Cautious Consumers Result in a Weak Market and Overall Economy and Passenger Car Sales Down in EU Again as Economy Struggles)

About Ken Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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