By Nick Mann | 8 January 2013
The US could have to increase its government borrowing limit by the middle of next month to avoid a default on its debt, analysts said yesterday.
The US Treasury Department reached its formal debt ceiling of $16,394 trillion on December 31 but is able to use a series of emergency borrowing actions known as ‘extraordinary measures’ to raise the extra $201bn needed to fully fund government activities.
According to the Bipartisan Policy Center’s Debt limit analysis, this option could be exhausted as soon as February 15. Congress will then have to reach political agreement on an increase to the limit in order for the US government to fund federal programmes and ensure it can meet the debt repayments needed to avoid a default.
Steve Bell, senior director of the BPC’s economic policy project, said: ‘Our numbers show that we have less time to solve this problem than many realise. We estimate that the Treasury will exhaust its borrowing authority and no longer have sufficient funds to meet its obligations in full and on time at some point between February 15 and March 1. It will be difficult for the Treasury to get beyond the March 1 date in our judgement.’
The BPC figures show that between February 15 and March 15, the US government must make $452bn of scheduled payments, including ‘big ticket items’ such as Internal Revenue Service tax refunds for individuals and Medicare, Medicaid and social security payments. During the same period projected revenues are expected to total $277bn – leaving a shortfall of $175bn in the government’s operating cash flow.
Bell warned that reaching this point – known as the ‘X Date’ – could force the Treasury to make difficult choices. ‘If we reach the X Date and the Treasury is forced to prioritise payments, handling payments for many important and popular programmes will quickly become impossible, causing disruption to an already fragile economic recovery,’ he said.
The BPC said the Treasury would need a debt limit increase of $1.1trn to fully fund the government to the end of 2013 and another $1trn to get through 2014.
US President Barack Obama has warned Republicans in Congress against any delay in approving an increase in the debt ceiling. Political deadlock over the last increase in the limit, in August 2011, led to market concerns that the US would default on its debts.
At the weekend, the leader of the Republican minority in the Senate, Mitch McConnell, said talks over the ceiling should also address the need for the US to address its ‘spending addiction’. Discussions over the limit are likely to take place at the same time as politicians seek agreement on how to deal with the automatic spending cuts scheduled to take effect on March 1.
These cuts were set to be enacted on January 1 as part of the ‘fiscal cliff’ until Congress reached a last-minute deal that also confined tax increases to the wealthiest 2% of the US population.
