Obama administration sees mid-October default deadline

WASHINGTON Mon Aug 26, 2013 5:51pm EDT

U.S. Treasury Secretary Jack Lew testifies before a Senate Banking hearing on ''The Financial Stability Oversight Council Annual Report to Congress.'' on Capitol Hill in Washington May 21, 2013. REUTERS/Kevin Lamarque

U.S. Treasury Secretary Jack Lew testifies before a Senate Banking hearing on ''The Financial Stability Oversight Council Annual Report to Congress.'' on Capitol Hill in Washington May 21, 2013.

Credit: Reuters/Kevin Lamarque

Related Topics

WASHINGTON (Reuters) - The Obama administration warned Congress on Monday that the United States could run out of money to pay its bills soon after mid-October if lawmakers do not move swiftly to raise a limit on government borrowing.

"Congress should act as soon as possible to protect America's good credit," Treasury Secretary Jack Lew said in a letter to congressional leaders, urging action "well before any risk of default becomes imminent."

The government has been scraping up against its $16.7 trillion debt limit since May, but has avoid defaulting on any of its obligations by employing a number of emergency measures to manage its cash, like suspending investments in pension funds for federal workers.

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 heated debate in Washington over the debt ceiling nearly led to default in 2011. This roiled financial markets at the time and helped prompt a Wall Street rating agency to downgrade America's debt rating.

This year, Republicans are considering using the need to raise the debt ceiling as leverage for their agenda in Congress. The party is trying to weaken President Barack Obama's signature healthcare overhaul. Conservatives also want to reform tax laws and get Obama to approve a proposed oil pipeline.

"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, a spokesman for House Speaker John Boehner.

While Congress has already taken the tax and spending decisions that have fueled U.S. budget deficits, it also separately controls the limit on the nation's debt.

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.

(Additional reporting by Thomas Ferraro, Mark Felsenthal and Rachelle Younglai; Editing by Leslie Adler and Ken Wills)

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article 

Recommended Newsletters

Reuters U.S. Top News
A quick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.
Reuters Deals Today
The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.
Reuters Technology Report
Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.