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Jack Lew warns Congress: Don't wait for 11th hour to raise debt limit

Congress has until mid-October to raise the nation's borrowing limit before paying the nation's debts would become a serious problem, but Treasury Secretary Jack Lew warned Tuesday that waiting that long to raise the limit would be a grave mistake.

"Trying to time a debt limit increase to the last minute could be very dangerous," Lew said at the Economic Club of Washington, D.C. "Make no mistake: If Congress does not act and the U.S. suddenly cannot pay its bills, the repercussions could be serious. The impact on families and businesses could be significant. Investors losing confidence in the full faith and credit of the United States could cause damage to our economy."

Currently, the debt limit stands at $16.69 trillion, and Lew noted that the Treasury actually hit that limit in May and has been using "extraordinary measures" since then to avoid defaulting on the nation's debts.

Those extraordinary measures would be exhausted by the mid-October. If Congress fails to act before they're exhausted, Lew explained, the U.S. would have to use cash balances on hand to fund the nearly $4 trillion in operations of the government. Doing so, Lew said, would put at risk the nation's financial obligations to programs like Social Security and Medicare.

"Of course, failing to meet our financial obligations should be an unthinkable event," Lew said.

President Obama on Monday stressed that he will not negotiate over the debt limit.

Last week, however, House Speaker John Boehner, R-Ohio, said, "You can't talk about increasing the debt limit unless you're willing to make changes and reforms that begins to solve the spending problem that Washington has."

After meeting with Lew last week, Boehner said he told the Treasury Secretary that "for decades the White House, Congress have used the debt limit to find bipartisan solutions on the deficit and the debt."

Lew explained that keeping negotiations open down to the moment before the nation's cash balance is depleted would be "misguided for several reasons."

"For one, it is not possible for the U.S. Treasury to know with precision when that moment will be because outgoing payments and incoming receipts vary significantly each day," he said. "Operating on a small cash balance creates the real danger that on a day that we anticipate having a positive cash balance we will actually have a negative one.

Additionally, he said, U.S. bond holders could decide to cash in their investments at any moment, and "we could unexpectedly dissipate our entire cash balance."

Even using that threat as a bargaining chip could damage the economy, Lew said, pointing out that the nation's credit rating was downgraded after the 2011 debt limit debate.