The United States will hit the legal limit on its ability to borrow no later than May 16, Treasury Secretary Timothy Geithner said on Monday, ramping up pressure on Congress to act to avoid a debt default.
The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations, Geithner said in a letter to congressional leaders. Default by the United States is unthinkable.
Previously, the Treasury had forecast that the $14.3 trillion statutory debt limit would be reached between April 15 and May 31.
Some Republican lawmakers have sought to use the need to raise the debt limit as a lever to pressure the Obama administration into agreeing on large-scale budget cuts.
The debt-limit showdown comes as Congress struggles to complete a spending package that would keep the government operating beyond Friday. Republicans are seeking to use that bill to enact deep spending cuts.
Geithner said a failure to raise the ceiling in a timely way would lead to hardship for many Americans as government payments would stop, pushing interest rates higher and sparking a financial crisis potentially more severe than the crisis from which we are only starting to recover.
Both Geithner and Federal Reserve Chairman Ben Bernanke have said a failure to raise the ceiling could have catastrophic consequences.
As the government nears the debt ceiling, the Treasury has authority to take certain extraordinary measures to postpone the date the United States would default on its obligations.
However, those actions would be exhausted after about eight weeks and there would be no headroom to borrow after July 8, Geithner said. The Treasury has already taken steps to avoid reaching the debt ceiling.
Lawmakers in both chambers have introduced legislation that would force the Treasury to first pay interest on U.S. bonds before other obligations, such as unemployment benefits and Social Security and Medicare payments, as a way to stave off a debt default.
They have also asked Treasury whether financial assets such as the country's gold reserves or the government's portfolio of student loans could be sold to avoid raising the debt ceiling.
Treasury has rejected the proposals as unworkable.
To attempt a fire sale of financial assets in an effort to buy time for Congress to act would be damaging to financial markets and the economy and would undermine confidence in the United States, Geithner said.
He said that while the debt ceiling projections could change, the Obama administration does not believe they could change in a way that would give Congress more time to raise the debt ceiling. He said Treasury would provide updated projections in early May.
(Editing by James Dalgleish)