By Judith Ugwumadu | 05 February
US Treasury Secretary Jack Lew has called on Congress to move ‘right away’ to increase the country’s borrowing limit days before the current spending agreement ends.
In October, Congress passed a temporary suspension of the $16.7 trillion debt cap until February 7 as part of the deal to reopen the federal government after the shutdown.
Meanwhile, in December legislators approved a two-year budget deal to keep the government running, but both the House and Senate failed to provide the borrowing authority needed to pay for the spending commitments that they made.
Speaking at the Bipartisan Policy Center on February 3, Lew reminded the Senate that the temporary suspension of the debt limit ends on Friday. He warned that if the debt ceiling isn’t raised by then the Treasury could exhaust its borrowing capacity risking a possible default on federal debt payments.
‘In just a matter of days, the temporary suspension of the debt limit will end, and the Treasury Department will have to start using extraordinary measures so the government can continue to meet its obligations,’ Lew warned.
He also noted that refunds the Treasury issued last year to Americans who overpaid their taxes had depleted the Treasury’s borrowing capacity very quickly, further straining its cash reserves.
‘After we exhaust this borrowing capacity, we will be left with only the cash we have on hand and any incoming revenues to meet our country’s commitments. Notably, we expect our outlays over the coming weeks to exceed our net inflows—largely due to the payment of tax refunds—so we will draw down our cash balance faster than at other times of the year.
‘Without [the] borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government.’
Some in Congress have suggested that extending the nation’s borrowing authority should be tied to spending cuts. But Lew argued that dramatically cutting back the nation’s spending was not necessary.
‘Raising the debt limit has nothing to do with new spending. It is about fulfilling spending obligations that Congress has already made and paying bills that have already been incurred.
‘I urge Congress to increase our borrowing in a timely manner. As House Speaker John Boehner has said — not only should the United States never default on its debt, we “shouldn’t even get close to it’. The fact is, simply delaying action on the debt limit can cause harm to our economy, rattle financial markets, and hurt taxpayers.’
In 2011, Washington came close to the edge of a near default on public debt, but Congress resolved the crisis when it passed the Budget Control Act 2011 and immediately increased the debt ceiling by $400bn, from $14.3trn to $14.7trn. Raising the debt ceiling resulted in the first downgrade in the US’s credit rating, from AAA to AA+, even though the country did not default.
