The US government debt ceiling has been reached. As expected, it’s a non-event for the market in spite of all the incessant whining by Treasury Secretary Geithner and President Obama.

Bloomberg reports Treasury Bill Rates at Almost Record Low as U.S. Debt Ceiling Is Reached

Treasury bill rates were at almost record lows as the U.S. reached its federal borrowing threshold and a congressional vote loomed in the next few months on raising the nation’s $14.3 trillion limit.

Six-month rates were at 0.07 percent, compared with the record low 0.0305 percent set on May 7, as Treasury Secretary Timothy F. Geithner said he has taken action to stave off the federal debt limit until Aug. 2, using accounting measures that involve two retirement funds. Three-month bill rates were at 0.02 percent, almost the lowest level since they went negative during the financial crisis.

“The debt ceiling issue continues to keep bill rates remarkably low,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “With the cuts in issuance for short-term securities. demand for paper in the front end demand remains firm for bills.”

Geithner wrote lawmakers today to say he has declared a “debt issuance suspension period,” a technical measure that allows him to free up borrowing room from the Civil Service Retirement and Disability Fund and the Government Securities Investment Fund. The steps, which come as Republicans and Democrats argue over when and how to raise the debt limit, won’t affect retirees or government operations.

Since the government shut down non-essential services in 1995, the borrowing threshold has been increased 12 times. In half of those instances, Congress waited until the ceiling had been reached before it was adjusted.

Geithner’s Letter to Congress

Here are a few snips from Geithner’s Debt Issuance Suspension Letter to Congress.

Dear Mr. Leader:

I am writing to notify you, as required under 5 U.S.C. § 8348(l)(2), of my determination that, by reason of the statutory debt limit, I will be unable to invest fully the portion of the Civil Service Retirement and Disability Fund (“CSRDF”) not immediately required to pay beneficiaries. For purposes of this statute, I have determined that a “debt issuance suspension period” will begin today, May 16, 2011, and last until August 2, 2011, when the Department of the Treasury projects that the borrowing authority of the United States will be exhausted. During this “debt issuance suspension period,” the Treasury Department will suspend additional investments of amounts credited to, and redeem a portion of the investments held by, the CSRDF, as authorized by law. …

The letter is pretty boring and repeats the above paragraph for the Government Securities Investment Fund (“G Fund”) of the Federal Employees’ Retirement System as well, followed by a feeble plea to raise the ceiling.

House Speaker Promises to Raise Debt Ceiling but Add Conditions

On May 15 Boehner Says U.S. Must Raise Debt Limit

Boehner, who in a May 9 speech demanded spending cuts greater than the amount of any debt-ceiling increase, told CBS yesterday that he understood “what the president was saying about jeopardizing the full faith and credit of the United States.”

“Our obligation is to raise the debt ceiling,” he said. “But to raise the debt ceiling without dealing with the underlying problem is totally irresponsible.”

Last month Obama appointed Vice President Joe Biden to lead negotiations with a small bipartisan group of congressional leaders to try to strike a deal on reducing the debt and deficits. The negotiators have met three times with Biden; the president held separate talks with Senate Democrats and Republicans May 11 and May 12.

“I’ve said, ‘Get them in a room, hammer out a deal, and make sure that we don’t even get close’” to defaulting on the nation’s debt, Obama said on CBS yesterday.

Fear-Mongering Response to Senator Bennett

Last week Senator Michael Bennett of Colorado sent a letter to Treasury Secretary Tim Geithner asking what would happen if the debt ceiling was not raised.

Geithner’s Fear-Mongering Response to Senator Michael Bennett was quite entertaining. Here are a few select quotes from Geithner:

A default would call into question, for the first time, the full faith and credit of the U. S. government. As a result, investors in the United States and around the world would demand much higher rates, reflecting the increased risk we might default on our obligations again.

A Default would not only increase borrowing costs for the Federal Government. but also for families, businesses, and local governments.

Even a short-term default could cause irrevocable damage to the American economy.

Geithner Drools Over Softball

The letter goes on and on with colorful warnings about double-dip recessions.

The entire setup looks like a staged event. Michael Bennett is a Democrat from Colorado who wants the debt ceiling raised. Purposely or not, Bennett lobbed a softball to Geithner who drooled all over it.

Game of Chicken

Let’s be serious here. Everyone knows the debt ceiling will be raised. All this politics is about preventing (or gaining) spending concessions. Obama and the Democrats wants to raise taxes, the Republicans want to reduce spending.

The debt ceiling is a game of chicken to see who blinks first and by how much.

I hope House Speaker Boehner plays it for the max.

Mike “Mish” Shedlock
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