WASHINGTON Feb 3 The Obama administration
warned on Monday it could start defaulting on the government's
obligations "very soon" after it runs out of room to borrow
under a legal cap on public debt.
Washington is due to reinstate a limit on its borrowing at
the end of this week and Treasury Secretary Jack Lew said the
administration can use accounting measures to stay under the new
cap until the end of February.
After that time, "very soon it would not be possible to meet
all of the obligations of the federal government," Lew said at
an event hosted by the Bipartisan Policy Center, a prominent
Washington think tank.
U.S. politicians now partake in a regular dance around the
country's so-called debt limit. First, Congress authorizes
spending that outstrips tax receipts. Then lawmakers balk over
whether to OK enough borrowing to pay the bills. A rancorous
debate ensues over putting public finances on a stable path.
Washington has danced perilously close to the edge of
default several times since 2011, and this year some Republicans
pledge to extract policy concessions from Democrats before they
allow the debt limit to rise.
The administration has vowed not to negotiate on the matter,
and Lew said public finances are in good enough shape that
long-term fiscal problems don't have to be solved this year
Federal debt ballooned during the 2007-09 recession and most
analysts think Washington's obligations to pay for health care
for the elderly will stress the budget more as U.S. society
But Lew said the sharp reduction in budget deficits over the
last few years has bought America time to improve its fiscal
"I'm not sure this is the year for the long-term fiscal
challenge to be dealt with," Lew said. "We have a little time to
deal with the longer term."
It is unclear if Republicans, who are pressing for an
overhaul of the government's health care obligations, will put
up much of a fight over the debt ceiling. U.S. House Speaker
John Boehner, a Republican, said last month American "shouldn't
even get close to" default.
In October, Congress and the administration suspended a
$16.7 trillion cap on borrowing until Feb. 7. If the debt
ceiling isn't raised by then, Treasury can juggle money between
government accounts for a few weeks to keep just under the new
Once it loses the ability to borrow, Treasury would pay its
bills by relying on incoming revenue and any cash left in public
No one is sure when the money would run out and lead to
missed payments on everything from Social Security pensions to
interest on the national debt. Lew said the end of February is a
particularly bad time to start relying on a cash cushion. This
is because the government at that time is mailing out tax
refunds, so the Treasury thinks it would burn through its
remaining cash more quickly than it would at other times of the
Many economists think a U.S. default could trigger a
financial panic and perhaps even an economic depression, and Lew
urged lawmakers to act swiftly to raise the debt ceiling.
"Unnecessary delays or political posturing ... could
snowball into a manufactured crisis," he said.