In an Oct. 15 letter to Congress, Department of Treasury Secretary Jack Lew warned that the “extraordinary measures” that have been employed to preserve the nation’s borrowing capacity will be exhausted no later than Nov. 3.
If this occurs, the federal government would be unable to pay its obligations fully, which would lead to delays of payments for government activities, a default on the government’s debt obligations, or both.
The debt limit, also known as the debt ceiling, is the maximum amount of debt that the Department of the Treasury can issue to the public and to other federal agencies. That amount is set by law and has been increased over the years to finance the government’s operations.
In March, the debt ceiling was reached, and Lew announced a “debt issuance suspension period,” during which time, existing statutes allowed the Treasury to take a number of “extraordinary measures” to borrow additional funds without breaching the debt ceiling.
Lew wrote, “The creditworthiness of the United States is an essential component of our strength as a nation. Protecting that strength is the sole responsibility of Congress, because only Congress can extend the nation’s borrowing authority…. [I]ncreasing the debt limit does not authorize any new spending. It simply allows Treasury to pay for expenditures Congress already has approved, in full and on time.”
“For these reasons, I respectfully urge Congress to take action as soon as possible, raise the debt limit without delay, and remove an unnecessary threat to our economy,” Lew wrote, adding, “We have learned from the past that failing to act until the last minute can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States. And there is no way to predict the irreparable damage that default would have on global financial markets and the American people.”
Meanwhile, in a report released Oct. 14, the Congressional Budget Office (CBO) suggests Congress may have a little more time to deal with the debt limit. CBO projects that if the debt limit remains unchanged, the Treasury will begin running a very low cash balance in early November, and the extraordinary measures will be exhausted and the cash balance entirely depleted sometime during the first half of November.