Treasury Preparing to Hit Debt Limit

The Obama administration is loudly warning that failure to raise the debt ceiling would be an economic catastrophe—but it’s also quietly bracing itself for that possibility, scrounging under the proverbial couch cushions for cash. Timothy Geithner has already drained a $200 billion special account at the Federal Reserve, and could borrow money from a federal pension fund as well, the Washington Post reports. He’s also likely to take “extraordinary measures” like ceasing to issue securities to help state governments.

Geithner may even be able to stave off default by paying investors interest on their debt. But none of that will reassure markets if the government has to stop paying its troops or issuing Social Security checks, Robert Rubin warns. Rubin got by on such financial trickery for four months in 1995. “The trouble is the numbers are much bigger this time,” he says, predicting Geithner could only hold out for “a few days to a few weeks.” And while Rubin admits "we don't know" what happens if the government defaults, he says it's "totally irresponsible to take the risk of trying to find out.” (More Timothy Geithner stories.)