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.
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