Treasury Secretary Jacob Lew expects that the Treasury will exhaust its abilities to meet the federal government’s obligations without breaching the debt ceiling in mid-October. Previously, analysts had projected that the Treasury would not run out of room under the debt limit until as late as mid-November.
In a letter to House Speaker John Boehner Monday, Lew wrote that based on the latest estimates, the Treasury’s abilities to maneuver under the debt ceiling “are projected to be exhausted in the middle of October” and warned that “Congress must act before the middle of October” to avoid the “dire consequences” of a debt default.
After the federal government hit the statutory limit for debt of just below $16.7 trillion in May, Lew projected that the government would be able to keep making interest payments on the debt and meet its other obligations through September.
That expected date was pushed back in estimates from the Bipartisan Policy Center after news of lowered spending and improved receipts, including $66 billion in dividend payments from the government-owned mortgage lenders Fannie Mae and Freddie Mac in June.
The Treasury cannot issue more debt without Congress passing a law raising the ceiling. When it is up against the debt limit, the Treasury takes “extraordinary measures” to avoid defaulting on U.S. sovereign debt or the federal government’s other commitments. Those measures include suspending payments to government workers’ retirement accounts.
After it exhausts its extraordinary measures, the Treasury faces running out of funds with which to pay the government’s bills, a possibility that would cause major turmoil in world financial markets.
The need to raise the debt ceiling will precipitate a major showdown in Congress. President Obama and Lew have repeatedly said that they will not negotiate with Republicans over the terms of a debt ceiling increase and risk a repeat of 2011, when a standoff over raising the limit was followed by a loss of consumer confidence and slowed economic growth. Republicans led by Boehner have requested spending cuts equal to the dollar amount by which the limit is to be increased.