Geithner says US could hit debt limit by March 31

WASHINGTON Thu Jan 6, 2011 9:46pm IST

Related Topics

WASHINGTON (Reuters) - The United States may hit the legal limit on its ability to borrow by March 31 and faces serious consequences unless Congress acts by then to raise it, Treasury Secretary Timothy Geithner said on Thursday.

"Even a short-term or limited default would have catastrophic economic consequences that would last for decades," Geithner said in a letter to U.S. Senate Majority leader Harry Reid that was issued by Treasury.

Geithner said it was hard to pin down exactly when the current $14.3 trillion ceiling on the debt limit would be pierced but urged Congress to act before the end of the first quarter to avoid the risk of pushing the United States into default.

At a briefing later, a U.S. Treasury official urged lawmakers preparing for a new budget, and a likely fractious debate over spending, not to mix up the debt-limit issue with calls for greater restraint in government spending.

CONFIDENT CONGRESS TO ACT

The official, who spoke on condition of anonymity, expressed confidence that Congress will raise the debt limit if only because not doing so would have such a damaging impact.

"Our view is this needs to get done, it will get done," the official said.

Exactly when the existing debt ceiling, which was approved only last February, will be pierced is not certain, but Treasury said it was looming.

"The Treasury department now estimates that the debt limit will be reached as early as March 31, 2011, and most likely between that date and May 16, 2011," Geithner wrote.

He said Treasury could engage in extraordinary measures, such as suspending ales of state and local government securities and thus delay the date by which the debt limit is reached "by several weeks" but preferred not to do so.

"Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations," Geithner said.

If that happened, Geithner said, there would be consequences for the U.S. economy "potentially much more harmful than the effects of the financial crisis of 2008 and 2009."

The U.S. Treasury official said the department expected Congress to "do the responsible thing" and to lift the debt limit so that the United States can keep borrowing to fund its daily operating needs.

(Editing by Padraic Cassidy)

FILED UNDER:

Monetary Policy Committee

Reuters Showcase

Microfinance

Microfinance

Funding the unfunded: India helps small business borrow to grow  Full Article 

Insurance Sector

Insurance Sector

UK healthcare firm Bupa sees strong growth in India  Full Article 

Sensex Rises

Sensex Rises

Sensex edges up; consumer and healthcare stocks rise  Full Article 

Market Eye

Market Eye

FTSE adds nine Indian firms as large-caps in Asia-Pacific ex-Japan index   Full Article 

Indian Ocean Diplomacy

Indian Ocean Diplomacy

PM Modi to ramp up help for Indian Ocean nations to counter China influence  Full Article 

ECB Bond-Buying

ECB Bond-Buying

ECB raises growth forecasts, to start printing money next week  Full Article 

China Economy

China Economy

China signals "new normal" with lower annual growth target  Full Article 

Pharma Sector

Pharma Sector

Panel recommends waiving late-stage trials for some drugs  Full Article 

E-commerce

E-commerce

China backs e-commerce expansion in win for Alibaba, JD.com  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage