The U.S. will run out of borrowing authority under the nation’s $16.7 trillion debt limit in mid-October, Treasury Secretary Jacob Lew formally told Congress on Monday, as he implored lawmakers to act soon to avoid a government default.
Lew had last updated Congress on the debt limit in May, saying that he expected the Treasury to be able to continue borrowing until at least Labor Day.
The new deadline comes as lawmakers prepare to return to Washington next month to battle over government spending. Republican leaders have demanded budget cuts in exchange for raising the debt limit, and some lawmakers want President Barack Obama and Democrats to agree to other policy concessions as well.
But Lew warned that a standoff risked “dire consequences,” and urged Congress to act quickly to “remove the threat of default.”
“Protecting the full faith and credit of the United States is the responsibility of Congress because only Congress can extend the nation’s borrowing authority,” Lew wrote to House and Senate leaders, with copies sent to all lawmakers.
“Failure to meet that responsibility would cause irreparable harm to the American economy,” he said.
A bitter showdown over raising the debt limit two years ago led Standard & Poor’s to cut the nation’s AAA credit rating to AA+.
The government technically hit its debt limit again in May. Since then, the Treasury has been using what it calls extraordinary measures to juggle the nation’s finances and continue borrowing to pay its bills.
The Treasury got additional help this summer when Fannie Mae and Freddie Mac made a combined dividend payment of nearly $60 billion on their bailouts, extending the deadline for the U.S. to raise its borrowing authority.
Based on the latest estimates, the Treasury’s extraordinary measures would reach their limit in the middle of October, Lew said.
At that point, the government would only be able to pay bills with cash on hand of about $50 billion on any given day. Because it’s not possible to estimate precisely when that cash would run out, Lew said Congress shouldn’t wait until the last minute.
“Congress should act as soon as possible to protect America’s good credit by extending normal borrowing authority well before any risk of default becomes imminent,” he wrote.