Federal Government to Hit Debt Limit in Mid-October
The federal government will exhaust all of its borrowing authority in mid-October and will be unlikely to pay all of its bills with the cash on hand at that time, Treasury Secretary Jacob Lew said Monday.
In a letter to Congress, Lew urged lawmakers to act soon to keep the nation’s credit in good standing and to extend the borrowing authority to avoid the risk of a default.
Based on the Treasury’s latest projections, all of its extraordinary measures are projected to be exhausted in the middle of October, Lew wrote. One of those measures is to halt sales of State and Local Government Series securities, which municipal securities issuers use for advance refunding escrows to avoid arbitrage problems. The cash balance at that time is currently forecasted to be approximately $50 billion, he said. This cash balance would be insufficient to cover net expenditures for an extended period of time and net expenditures could exceed the cash balance on some days, Lew said.
“Operating the government with no borrowing authority, and with only the cash on hand on any given day, would place the United States in an unacceptable position,” he said.
The federal government cuts about 80 million checks for Social Security, Medicare reimbursements and military salaries.
Lew said the Treasury Department can’t predict with precision the exact date in which it will exhaust its cash because there are a variety of factors that are irregular, such as tax receipts, the unwillingness of investors to re-invest in Treasury securities, or change in expenditure flows.
“Extending borrowing authority does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has previously approved,” Lew wrote.
If Congress failed to act before October to extend the borrowing authority, it would cause “irreparable harm to the American economy,” Lew said.
Lew sent a similar letter to Congress in May urging swift action on the debt ceiling to preserve the nation’s credit rating.
House Speaker John Boehner, R-Ohio., has repeatedly insisted that Republicans will not increase the debt ceiling without spending cuts.
The federal government has approximately $16.7 trillion in debt.
Reacting to Lew’s letter, Ways and Means Committee Ranking Minority Member Rep. Sandy Levin, D-Mich., said, “With just nine legislative days currently scheduled in September, Republicans must return to Congress prepared to move beyond the kind of brinksmanship that undermined our economic recovery two years ago. It is time for Republicans to do the right thing not the far right thing and put the American economy first. Congress must pay its bills based on the legislative bills that it has passed, living up to our obligations and paying our bills just like the American family does.”