Lew Tells Congress Treasury to Hit Debt Limit in Mid-October
The U.S. will hit the $16.7 trillion debt ceiling in mid-October, Treasury Secretary Jacob J. Lew said in a letter urging Congress to raise the limit “as soon as possible.”
“Extraordinary measures are projected to be exhausted in the middle of October,” Lew said in the letter today to House Speaker John Boehner and other lawmakers.
“At that point, the United States will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day,” he said. The cash balance at that time is forecast to be about $50 billion, “insufficient to cover net expenditures for an extended period of time,” according to Lew.
The Treasury Department had earlier said it probably will be able to finance government operations by using special accounting measures until after Congress returns Sept. 9 from its recess. Lew said Aug. 22 a failure by Congress to raise the debt limit would “have disastrous effects for our nation” and could put at risk payments to Social Security recipients and veterans.
“Congress should act as soon as possible to protect America’s good credit by extending normal borrowing authority well before any risk of default becomes imminent,” Lew said in the letter.
Boehner said last month Republicans wouldn’t increase the debt ceiling “without real cuts in spending” that would achieve a further reduction in the deficit. Lew has said the Obama administration won’t negotiate on the debt limit.
The Bipartisan Policy Center, a nonprofit research group, has estimated that the U.S. will reach the point where it is unable to pay its bills sometime between mid-October and mid-November unless Congress increases the limit.
“Protecting the full faith and credit of the United States is the responsibility of Congress because only Congress can extend the nation’s borrowing authority,” Lew said in the letter. “Failure to meet that responsibility would cause irreparable harm to the American economy.”
Lew also said it’s not possible to estimate “with any precision” the exact date the Treasury will run out of cash if Congress doesn’t extend the debt limit.
“With just nine legislative days currently scheduled in September, Republicans must return to Congress prepared to move beyond the kind of brinksmanship that undermined our economic recovery two years ago,” Sander Levin, a Michigan Democrat and ranking member of the House Ways and Means Committee, said in a statement today.
In August 2011, Congress agreed after months of haggling to increase the debt limit on the day the government’s ability to borrow was to run out.
Standard & Poor’s, which downgraded the U.S. one step to AA+ three days later, changed its outlook in June of this year to “stable” from “negative.”
Though the 2011 downgrade by S&P, the world’s largest credit rater, contributed to a global stock-market slump, U.S. government debt lost none of its attraction for investors. Yields on Treasury securities dropped to record lows rather than going higher after the downgrade. Yields on 10-year Treasury notes dropped 0.74 percentage point in the seven weeks following the downgrade to a then-record 1.67 percent.
The U.S. 10-year yield fell three basis points, or 0.03 percentage point, to 2.79 percent at 4:18 p.m. in New York, according to Bloomberg Bond Trader prices.
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