Facing a new Congress in which Republicans are more dead-set than ever on reducing government spending, Treasury Secretary Tim Geithner served notice that the U.S. government could hit the statutory debt limit as early as March 31 and no later than May 16.
"Never in our history has Congress failed to increase the debt limit when necessary," warned Geithner in his letter urging the House and Senate to take action no later than the end of March.
He said a failure to raise the limit would trigger a default by the U.S. government on its financial obligations "and could lead to the loss of millions of American jobs."
Geithner explained that the amount of federal debt subject to the debt limit now stands at $13.95 trillion and is rising.
If it were to hit the debt limit of $14.29 trillion, the government would be barred from any further borrowing and would quickly default on the interest it's obliged to pay on its debt.
"I am certain you will agree that it is strongly in our national interest for Congress to act well before the debt limit is reached," Geithner implored congressional leaders.
But newly-installed Speaker of the House John Boehner was quick to respond, telling Geithner "the American people will not stand" for an increase in the debt limit, "unless it is accompanied by meaningful action by the President and Congress to cut spending and end the job-killing spending binge in Washington."
Some new House Republicans were elected on pledges to vote against any further increase in the debt limit.
As a senator in 2006, Barack Obama, calling the surge in federal red ink "a sign of leadership failure." Despite his vote, an increase in the debt limit was approved, though he said it reflected "our government's reckless fiscal policies."
Hoping members of Congress don't follow Mr. Obama's lead from 2006, Secretary Geithner wrote congressional leaders that the government would have to take severe steps if the debt limit is reached before it is raised. He said spending would have to be cut or curtailed on:
- U.S. military salaries and retirement benefits
- Social Security and Medicare benefits
- Veterans' benefits
- Federal civil service salaries and retirement benefits
- Unemployment benefits
- Student loan payments
- Medicaid payments
The Treasury Department estimates that the aforementioned steps would buy the government another eight weeks before it defaulted on T-bills and other Treasury instruments.
But briefing reporters, Treasury Department officials expressed confidence that "Congress will do the responsible thing" and raise the debt limit before it is hit.