Washington: Warning US lawmakers that time is fast running out on the debt ceiling issue, Treasury Secretary Timothy Geithner has told the Congressional leadership that America could default by mid-February.
"If Congress does not act to extend borrowing authority, all of these payments would be at risk. This would impose severe economic hardship on millions of individuals and businesses across the country," Geithner said in a letter to the Congressional leadership yesterday.
The US had hit the USD 16.4-billion debt ceiling on December 31. Since then it has employed "extraordinary measures" to avoid any default, but it might end up mid- February if the debt limit is not increased, he said.
"Treasury currently expects to exhaust these extraordinary measures between mid-February and early March of this year. We will provide a more narrow range with a more targeted estimate at a later date," Geithner said.
Any estimate, however, will be subject to a significant amount of uncertainty because the US is entering the tax filing season when amounts and timing of tax payments and refunds are unpredictable, he said.
"For this reason, Congress should act as early as possible to extend normal borrowing authority in order to avoid the risk of default and any interruption in payments," he said.
"If the extraordinary measures were allowed to expire without an increase in borrowing authority, Treasury would be left to fund the government solely with the cash we have on hand on any given day.
"As you know, cash would not be adequate to meet existing obligations for any meaningful length of time because the government is currently operating at a deficit," he said in the letter.
Geithner said it is important to point out that extending borrowing authority does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has previously approved.
"Failure to meet those obligations would cause irreparable harm to the American economy and to the livelihoods of all Americans.
"Even a temporary default with a brief interruption in payments that Congress subsequently restores would be terribly damaging, calling into question the willingness of Congress to uphold America's longstanding commitment to meet the obligations of the nation in full and on time," Geithner said.
"It should also be noted that default would increase our borrowing costs and damage economic growth and therefore add to future budget deficits, not decrease them.
This is why no President or Secretary of the Treasury of either party has ever countenanced even the suggestion of default on any legal obligation of the United States," Geithner said.
The Treasury Secretary said protecting the full faith and credit of the US is the responsibility of Congress because only Congress can extend the nation's borrowing authority.
"No Congress has ever failed to meet that responsibility. It must be understood that the nation's creditworthiness is not a bargaining chip or a hostage that can be taken to advance any political agenda; it is an essential underpinning of our strength as a nation.
"Threatening to undermine our creditworthiness is no less irresponsible than threatening to undermine the rule of law, and no more legitimate than any other common demand for ransom," he said.