Treasury Secretary Timothy Geithner announced on Monday morning that the federal government had met its statutory borrowing limit. Now a $14,294,000,000,000 cap on debt is firmly in place, starting the clock toward potential default and turning up the heat on simmering fiscal negotiations in Washington.
While the milestone is not expected to have major immediate economic consequences, Treasury will now begin a series of “extraordinary” measures designed to stave off a potential government default until August 2, when Treasury will be faced with the need to cut $125 billion in monthly spending or default on interest payments.
Republican leaders are refusing to support a debt-limit increase without substantial spending cuts. With markets watching Washington for signs of progress, the stakes have been raised for bipartisan deficit reduction talks led by Vice President Joe Biden. Those talks are expected to develop a multiyear budget framework to save anywhere from $1 trillion to $2 trillion and allow a debt-limit increase to pass.
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This article appears in the May 16, 2011 edition of National Journal Daily PM Update.