Treasury downsizing program as debt limit nears

The Treasury Department took an initial step Thursday to position itself against the rapidly approaching debt ceiling, announcing it will reduce the size of one of its programs to free up more space for borrowing elsewhere.

Over the next eight weeks, the Treasury will shrink the size of its Supplementary Financing Program from its current $200 billion size to just $5 billion. The program, created in 2008, allows the Treasury to issue short-term notes and place the funds into accounts with the Federal Reserve.

The downsizing is being done "to preserve flexibility in the conduct of debt management policy," said Mary Miller, the Treasury's assistant secretary for financial markets. The Treasury similarly wound down the program when it neared the debt limit in 2009.

While not surprising, the move is the first of what is expected to be several taken by the Treasury, as the amount of room it can maneuver under the current $14.3 trillion debt ceiling continues to shrink.

Lawmakers on Capitol Hill are still duking it out over what exactly should be done on the federal debt limit, or what measures should accompany an increase.

Republicans are demanding that any vote to increase the statutory ceiling include promises of major spending cuts, with some pushing for a vote on a balanced budget amendment to be part of the package.

But Treasury Secretary Timothy Geithner warned Congress on Jan. 6 of catastrophic economic consequences, including a potential default on U.S. debt, if the ceiling is not raised before it is hit sometime this spring. Geithner estimated the limit could be reached as early as March 31. Thursday's move is not expected to buy any more time for the government, as Geithner accounted for the downsizing in his expectations.

Members of the Republican Study Committee unveiled legislation Wednesday that they said would protect the U.S. from default if the debt limit is reached, in an effort to remove that dire consequence from the debate.