The US will hit its statutory debt ceiling in mid-October, raising the chance that the government will be forced to default on its debts, Treasury Secretary Jacob Lew said on Monday.
In a letter to Congress, Lew urged legislators to raise the limit from the current $16.7 trillion, saying to not do so “would cause irreparable harm to the American economy.”
The Treasury has been operating under the ceiling since it reached that level on May 17, helped by “extraordinary measures” to manage expenditures, and a surge in tax receipts above forecasts.
However, Lew said, the latest estimates point to that breathing room being exhausted around the middle of October.
“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.”
That “would place the United States in an unacceptable position,” Lew said, unable to serve rising commitments to issue payments for health and retirement needs and not able to pay the required salaries.
Moreover, he warned, if investor demand for US government debt declines, the country could face an immediate cash shortfall.
“Indeed, such a scenario could undermine financial markets and result in significant disruptions to our economy.”
Lew said it was not possible to pinpoint the exact day Treasury commitments would exceed its funds.
But, he said, “Under any circumstance… Congress must act before the middle of October.”
Lew’s comments were in a letter addressed to John Boehner, the Republican speaker of the House of Representatives.
It came as the White House and both parties in Congress gird for yet another battle over spending that will conflate the debt ceiling and the US budget.
In repeated battles over the past two years Republicans have stalled increases in the debt ceiling to extract commitments to cut spending from President Barack Obama’s Democrats.
The fight in July-August 2011 took the country to the brink, poised between defaulting on obligations to US citizens or defaulting on foreign debt.
While that fate was averted in a last-minute deal, the budget fight was not resolved and Standard & Poor’s dealt the country the first-ever downgrade of its top-flight debt rating.
Lew evoked that scenario again in his letter to Boehner.
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,” he said.
“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.”