The U.S. Treasury will hit its debt limit in mid October, a time “sooner than many on Capitol Hill had anticipated” according to the Dow Jones wire service, which cited sources familiar with the matter.
The last large-scale debt-ceiling fight occurred in the summer of 2011 and culminated in an eleventh-hour deal creating the Budget Control Act of 2011, which included sequestration. It was followed by the first downgrade of the country’s credit rating by Standard & Poor’s, which decried the policy squabbling in Washington and said the agreement failed to address the main drivers of the country’s debt.
The last time the United States raised the debt ceiling was this past February, when President Obama signed the No Budget, No Pay Act of 2013. The law temporarily suspended the debt limit until May and compelled members of Congress to pass a budget or have their pay held in escrow until they succeeded in doing so.
Near the end of the three-month suspension, before Treasury began a number of special measures to extend the government’s borrowing authority, Treasury secretary Jack Lew originally predicted that the debt ceiling would not be reached until Labor Day, but he has continuously called on Congress to reach a deal raising the debt ceiling.
UPDATE: Secretary of the Treasuty Jack Lew wrote to Speaker of the House John Boehner today, warning that the “extraordinary measures” Treasury has taken to stave off the debt limit will be “exhausted in the middle of October.”
At that point, Lew says, the government would be left “with only the cash on hand on a given day,” which he describes as “an unacceptable position.” The government makes roughly 80 million payments a month, and a cash balance of “approximately $50 billion would be insufficient to cover net expenditures for an extended period of time.”
Not only that, but “on certain days, net expenditures could exceed such a cash balance.” It is impossible to “estimate with any precision the date on which Treasury would exhaust its cash in this situation.” Lew warns that if investors stop loaning money to the United States, the country would face “an immediate cash shortfall” which could “undermine financial markets and result in significant disruptions to [the] economy.”
Lew closes out his letter by reminding the Speaker that increasing borrowing authority “does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has previously approved,” and calls on Congress to remove the “threat of default.”
An identical letter was sent to the other party leaders in both chambers, and was cc’ed to every member of the 113th Congress.