The federal government's credit card will hit its limit in mid-October, Treasury Secretary Jack Lew warned Monday in a letter to House Speaker John Boehner, R-Ohio.
Lew urged Congress to reach a budget deal to increase the $16.7 trillion borrowing limit in order to avoid rattling financial markets. Raising the debt ceiling, the nation's borrowing limit, requires congressional approval. It does not authorize new spending, but pays for spending that has already been approved.
"Congress should act as soon as possible to protect America's good credit," Lew wrote, "well before any risk of default becomes imminent."
Lew said the government will exhaust its borrowing capacity in the middle of October and be left with about $50 billion in cash on hand, an amount that he said could conceivably be wiped out in a single day. That would make default imminent and could shake investors' confidence in the United States, he said.
"Such a scenario could undermine financial markets and result in significant disruptions to our economy," Lew added.
A vote to increase the debt limit has been anticipated later this year, but Lew's letter established a more specific deadline for congressional action.
The federal government makes about 80 million payments each month. If the U.S. failed to increase its borrowing authority, the Treasury would be forced to operate with only the cash it takes in every day -- an amount that would not cover its expenses and threaten payments including military salaries and Social Security payments, Lew said.
Congress approved a short-term increase in the debt ceiling earlier this year to focus on the annual budget debate. President Barack Obama is trying to avoid a protracted debt limit fight, but he has demanded an increase with no conditions attached. Congressional Republicans, led by Boehner, have asked for commensurate spending cuts or reforms in exchange for raising the debt limit.
"The debt limit remains a reminder that, under President Obama, Washington has failed to deal seriously with America's debt and deficit," said Michael Steel, Boehner's spokesman, in response to Lew's letter. Obama is vowing not to let the debt ceiling be a bargaining chip in other political discussions.
"We will not negotiate with Republicans in Congress over Congress' responsibility to pay the bills that Congress has racked up, period," said White House spokesman Jay Carney.
Previously, the Obama administration had said Congress needed to act by early September, but a strengthening economy has boosted tax receipts, buying the government more time before it runs out of borrowing room.
The non-partisan Congressional Budget Office has said the government might not exhaust its borrowing capacity until November, an estimate in line with private sector forecasts.