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U.S. Hits Borrowing Limit U.S. Hits Borrowing Limit

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U.S. Hits Borrowing Limit

photo of Niraj Chokshi
December 31, 2012
The federal government reached its borrowing limit on Monday, Treasury Secretary Timothy Geithner wrote in a letter to congressional leadership.
While the government has reached it's debt limit, Geithner will be able to use so-called "extraordinary measures" to delay a default by as much as two months. An accurate estimate, however, is hard to come by due to uncertainty surrounding the tax hikes due to go into effect on Tuesday and drastic spending cuts slated for Wednesday, Geithner told lawmakers last week.
The debt limit has reared it's head in discussions to avert the tax hikes and spending cuts, known collectively as the fiscal cliff, though President Obama has vowed not to allow it to be used as a bargaining chip. 
The debt limit represents the GOP's best hope for getting Democrats to agree to major spending cuts, though it could backfire. The last debt ceiling fight, in the summer of 2011, led Standard and Poor's to downgrade the nation's credit rating, with much of the blame falling on Republicans.

The federal government reached its borrowing limit on Monday, Treasury Secretary Timothy Geithner wrote in a letter to congressional leaders.

Hitting the ceiling does not mean the government faces a debt default. Geithner will be able to use so-called "extraordinary measures" to manage the country's payments for two more months, but a default will loom as a threat in early 2013 unless Congress takes action to lift the debt limit. Geithner has said that the precise deadline for avoiding a default is unclear because of uncertainty surrounding tax increases and automatic spending cuts that will take effect this week if lawmakers can't reach a deal to avert the "fiscal cliff."

The debt limit has reared its head in discussions to keep the country from going over the cliff, though President Obama has vowed not to allow it to be used as a bargaining chip in the budget talks.

It is a potential source of leverage for GOP lawmakers pushing for cuts in spending, but their efforts to use it to put pressure on Obama could backfire. The last debt-ceiling fight, in the summer of 2011, prompted Standard & Poor's to downgrade the nation's credit rating. The American public blamed Republicans for the fiasco.

 

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