Geithner warns U.S. to hit debt ceiling by May 16

WASHINGTON Mon Apr 4, 2011 6:17pm EDT

Treasury Secretary Timothy Geithner and other members of President Barack Obama's cabinet wait to be introduced to Brazil's President Dilma Rousseff at the Planalto Palace in Brasilia, March 19, 2011. REUTERS/Jason Reed

Treasury Secretary Timothy Geithner and other members of President Barack Obama's cabinet wait to be introduced to Brazil's President Dilma Rousseff at the Planalto Palace in Brasilia, March 19, 2011.

Credit: Reuters/Jason Reed

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WASHINGTON (Reuters) - 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. As of Friday, Treasury borrowing stood just $95 billion from the ceiling.

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 and lawmakers are focusing on a proposal to trim this year's budget by $33 billion, a relatively small amount compared with a projected $1.4 trillion deficit.

Geithner said a failure to raise the debt ceiling in a timely way would push interest rates higher and spark "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."

BUYING TIME

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.

Some lawmakers have called for legislation to 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.

Based on estimates last year from the International Monetary Fund, U.S. debt as measured against the size of the economy is higher than in France, Canada and Germany, but less than in Italy and Japan

Geithner 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 and Jan Paschal)

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Comments (123)
DrJJJJ wrote:
Charge it! We’ll change when we’re broke! Warning: Don’t try this at home-these are professional gamblers!

Apr 04, 2011 4:33pm EDT  --  Report as abuse
JEYF wrote:
Let’s see they are having a hard time to cut $33 billion when we are having a $1.5 trillion deficit. Has anyone in Congress ever been taught math? A $33 billion dollar cut is not going to be enough with a $1.5 trillion deficit. Let’s do the math 33 billion goes into 1.5 trillion lets see carry the … oh yeah 45.46 times.

They are going to have to cut a lot deeper than they are trying to.

And the deficit does not even have the $600 billion in interest payments we need to make so the deficit is really $2.1 trillion they need to cut about 100 times more to make a dent in the deficit. Cutting $3.3 trillion off a year will pay off the deficit in about 7 years folks.

Apr 04, 2011 5:00pm EDT  --  Report as abuse
Maxfusion wrote:
Do NOT give this twit another dime.

Apr 04, 2011 5:03pm EDT  --  Report as abuse
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