The United States will reach its $16.4 trillion borrowing limit on Dec. 31 and undertake “extraordinary measures” to avoid default, the Treasury Department informed congressional leaders in a letter on Wednesday.
The notice about the debt ceiling came packaged with a stark warning from Treasury Secretary Timothy Geithner, who said the policy uncertainty stemming from the “fiscal cliff” makes it impossible for him to say with certainty how much time lawmakers have left to raise the borrowing cap.
“Given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” Geithner wrote.
The Treasury chief, facing the second debt-ceiling breach of his tenure, said the government has $200 billion worth of “extraordinary” actions it can employ to prevent default, typically by shifting funds from various nonessential purposes to essential government functions.
Under normal conditions, that would buy policymakers about two months to haggle over the debt limit before an increase would be required, Geithner said. The last time the government reached its debt limit, in May 2011, Treasury’s measures delayed the need for a debt-ceiling increase until August.
But the uncertain fate of the nation’s tax and spending policies in the talks over the fiscal cliff has clouded Treasury’s calculations, Geithner said.
If policymakers do not strike a deal and the U.S. goes over the fiscal cliff, the combination of tax hikes and spending cuts is expected to push the U.S. economy into a recession.
Going over the cliff would actually buy Congress more time to strike a debt-limit deal, since the increased revenue and reduced spending would reduce the need for the government to borrow funds, Geithner said.
Lawmakers will get a more precise timeline on the debt limit once the policy outlook clears, Geithner said.
The last fight over a debt-ceiling increase consumed Washington in brinksmanship and brought the nation perilously close to default.
President Obama has vowed not to repeat that standoff, and pushed for power over the debt limit in fiscal cliff talks with Speaker John Boehner (R-Ohio).
“If Congress in any way suggests that they’re going to tie negotiations to debt ceiling votes and take us to the brink of default once again as part of a budget negotiation … I will not play that game,” Obama told business leaders earlier this month.
Rank-and-file Republicans have rejected including a debt-ceiling increase in a cliff deal, arguing that the need to increase the debt-limit in early 2013 gives them leverage to extract more spending cuts from the White House.
Some Democrats have urged the president to sidestep Congress and raise the debt ceiling unilaterally under the 14th amendment