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U.S. debt ceiling could be hit in February

U.S. debt ceiling could be hit in February

DEBT DRAMA: The U.S. debt ceiling might be hit in February. Photo: Reuters

By Jason Lange

WASHINGTON (Reuters) – The Obama administration warned Congress that the government could run out of borrowing authority needed to help pay its bills as soon as February if lawmakers do not swiftly raise the federal debt ceiling.

“I respectfully urge Congress to take action to raise the debt limit at the earliest possible moment,” Treasury Secretary Jack Lew said in a letter to congressional leaders.

Congress passed a two-year budget deal on Wednesday to trim some spending cuts planned for next year, and the pact reduces the risk of a government shutdown.

But the legislation does nothing to avoid a potential unprecedented U.S. debt default that could occur if Washington does not raise the borrowing cap soon.

In October, Congress and the administration suspended a $16.7 trillion cap on borrowing until February 7. If the debt ceiling isn’t raised by then, Treasury will be able to juggle money between government accounts for a few weeks to keep just under the new limit.

But Lew said the department would exhaust these so-called extraordinary measures sometime between late February and early March. After then, it would no longer be able to borrow to cover its expenses.

“While this forecast is subject to inherent variability, we do not foresee any reasonable scenario in which the extraordinary measures would last for an extended period of time,” Lew said.

Once it loses the ability to borrow, Treasury would pay its bills by relying on incoming revenue and any cash left in public coffers.

After the money runs out, the government could start missing payments on its debt and other obligations, such as Social Security pensions. Many economists think a U.S. default could trigger a financial panic and perhaps even an economic depression.

Heated debates in Washington over the debt ceiling have periodically roiled financial markets since 2011, when the risk of default helped prompt Standard & Poor’s to downgrade America’s debt rating. Political dysfunction again rattled Wall Street in October.

In November, the Congressional Budget Office estimated the Treasury might be able to stave off defaulting on obligations next year until as late as June, depending on the strength of tax receipts. Some private sector analysts have also said the government could stretch its cash until around then.

But the Treasury is holding firm that borrowing authority will expire no later than early March.

A senior official said the Treasury’s cash flow estimates for next year include the possibility that government revenues might be boosted by higher revenues due to faster economic growth or dividend payments from housing finance firms that are controlled by the government.

(Reporting by Jason Lange; Editing by Krista Hughes and Philip Barbara)

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