U.S. government may not hit debt limit until October: analysts

By Rachelle Younglai

WASHINGTON (Reuters) - The United States might not hit the statutory limit on its debt until October, a policy research group said on Friday, giving Republican lawmakers more time to extract spending cuts from the Obama administration in return for extending the borrowing cap.

After giving into Democratic demands in December to raise taxes and later working with them to avoid a government shutdown, Republicans have been gearing up to use the debt limit as leverage to seek fresh budget cuts and changes to the tax code.

The Bipartisan Policy Center, a Washington think tank that analyzes the Treasury's daily and monthly cash flows, had expected the federal government to hit the congressionally-set limit on its debt sometime between early-August and mid-September.

But stronger-than-expected revenues and deeper-than-anticipated budget cuts mean the ceiling on borrowing probably will not be reach until sometime between mid-August and mid-October, the group said on its website on Friday.

"October is a nasty month," BPC economic policy director Steve Bell said in an interview, noting that major government payments are due in October.

If Congress does not raise the borrowing cap before the Treasury hits the limit, the government will no longer be able to borrow money to pay its bills, including interest on its bonds, raising the risk of a damaging debt default.

In an attempt to avoid being blamed for a default, Republicans in the House of Representatives are pushing legislation to require the Treasury to pay bondholders and Social Security retirement benefits before other bills if Congress does not raise the debt ceiling on time.

The BPC said its forecast could change depending on economic conditions and when updated financial information became available.

Nearly $90 billion may soon be pumped into government coffers by the now-profitable government-controlled housing finance firms Fannie Mae and Freddie Mac to account for deferred tax assets that were written down.

The think tank, however, does not think the disbursement to the Treasury will be that high. "We do expect that there will be a payment of some size in June but it is our opinion that the number is more likely to be in the $20 billion range and not in the rumored $100 billion range," Bell said.

The Treasury has said it could not forecast an exact date for when Congress must raise the debt ceiling due to delayed tax filings and uncertainty about the effect of the government budget cuts.

(Reporting by Rachelle Younglai; Editing by Paul Simao)

View the original article here

Cyprus' banks to remain closed until Thursday

NICOSIA, Cyprus (AP) — Cyprus has extended the closure of its banks for two more days — until Thursday — a sudden postponement that comes after the country's leaders spent days struggling to come up with a plan to raise the money needed to secure an international bailout.

Banks in the country have already been closed for more than a week to prevent a run on deposits. All except the country's two largest lenders had been due to open Tuesday morning after the country clinched an eleventh-hour deal with the 17-nation eurozone and the International Monetary Fund to provide Cyprus with a bailout.

Without that deal, the country's banks would have collapsed, dragging down the economy and potentially pushing it out of the eurozone.

The decision to keep banks closed two more days was announced late Monday. The Central Bank said that "for the smooth functioning of the entire banking system, the finance minister has decided, after a recommendation by the governor of the Central Bank, that all banks remain shut up to and including Wednesday."

Banks have been closed since March 16 to avert a run on deposits as the country's politicians struggled to come up with a way to raise enough funds to qualify for the bailout. An initial deal that would have seized up to 10 percent of people's bank accounts spooked depositors and was soundly rejected by lawmakers early last week.

ATMs have been functioning, but many run quickly out of cash, and a daily withdrawal limit of 100 euros was imposed on the two largest lenders, Bank of Cyprus and Laiki.

Under the deal reached in the early hours of Monday morning in Brussels, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks to secure the 10 billion euro ($13 billion) bailout.

The new plan allows for the bulk of the funds to be raised by forcing losses on accounts of more than 100,000 euros in Laiki and Bank of Cyprus, with the remainder coming from tax increases and privatizations.

People and businesses with more than 100,000 euros in their accounts at Laiki face significant losses. The bank will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.

Deposits at Bank of Cyprus above 100,000 euros will be frozen until it becomes clear whether or to what extent they will also be forced to take losses. Those funds will eventually be converted into bank shares.

It is not yet clear how severe the losses would be to Laiki's large bank deposit holders, but the euro finance ministers noted the restructure expected to yield 4.2 billion euros ($5.4 billion) overall. Analysts have estimated investors might lose up to 40 percent of their money.

Speaking about the marathon negotiations in Brussels that resulted in the deal, Cyprus President Nicos Anastasiades said that "the hours were difficult, at some moments dramatic. Cyprus found itself a breath away from economic collapse."

The agreement, he said, "is painful, but under the circumstances the best we could have ensured. The danger of Cyprus' bankruptcy is definitively overcome and the tragic consequences for the economy and society are averted."

View the original article here