The US Treasury hit its US$14.29 trillion legal limit on borrowing on Monday as the White House sternly warned lawmakers they must approve an increase or risk a catastrophic default on debt payments.
With Washington in the grips of an all-out political war over government finances, US Secretary of the Treasury Timothy Geithner formally notified US Congress that the government had slammed into its debt ceiling and urged an increase.
The secretary warned US Senate Majority Leader Harry Reid in a letter that the US would exhaust temporary remedies come Aug. 2 and will face a choice between draconian spending cuts or a possible default.
Geithner urged lawmakers to approve a debt ceiling increase “as soon as possible,” saying action was needed “to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens.”
US House Speaker John Boehner, who has led the opposition resistance to raising the cap, responded by reiterating the Republican line on the need to reduce spending.
“As I have said numerous times, there will be no debt limit increase without serious budget reforms and significant spending cuts — cuts that are greater than any increase in the debt limit,” he said in a statement.
Meanwhile, bond markets took a lackadaisical view of the controversy. The yield on US bonds, which indicates investors’ view of the creditworthiness of a borrower, dropped to near their lowest levels so far this year, a sign of confidence in the government.
The 10-year Treasury yielded 3.1490 percent at the close of trade.
Behind the rhetoric, US Vice President Joe Biden has been hosting talks with top Republicans in a bid to agree on what long-term spending cuts should be tied to a debt ceiling increase that lawmakers are ultimately all-but-certain to approve.
To avoid topping the ceiling, Geithner said the government would halt the automatic cycling of civil service pension funds into US Treasury debt, the way they are traditionally stored.
The move will give the Treasury about US$224 billion of headroom as it meets new borrowing needs to cover the government’s mounting budget deficit, which has risen an average of US$124 billion a month since October.
White House spokesman Jay Carney said Geithner had taken “extraordinary measures” to provide “some cushion” to the government through Aug. 2, but pressed lawmakers not to delay action to raise the ceiling.
“We need to have a vote to lift the debt ceiling because the consequences of not doing so would be quite serious indeed and those who suggest otherwise are whistling past the graveyard,” Carney said. “It’s a foolish thing to suggest that we can somehow, as the United States of America, default on our obligations and that it would not have seriously negative consequences if we suddenly stopped paying our bills.”
US President Barack Obama’s Republican foes have warned they will thwart any attempt to lift the debt ceiling unless his Democratic allies agree to massive long-term spending cuts, chiefly to beloved social programs.
Democrats say they know Washington must tighten its belt, but have blasted Republicans for flatly ruling out raising taxes and bloodied them for calling for cuts to the Medicare healthcare program for the elderly and disabled.
Some Democrats on the party’s left wing also complain that spending cuts will stall the economic recovery and risk leaving in the lurch millions of Americans hunting for jobs.