The U.S. will reach its $14.29 trillion legal debt limit no later than May 16 unless Congress acts before then, Treasury Secretary Timothy F. Geithner said today, and he warned of “severe hardship” for Americans if lawmakers fail to act.
If the limit hasn’t been raised by May 16, the Treasury Department will turn to a toolkit of emergency measures that can provide up to eight weeks of additional borrowing room, Geithner said. That extra time would end about July 8, the Treasury chief said.
“The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations,” Geithner said in a letter to Senate Majority Leader Harry Reid and other members of Congress.
Congress needs to raise the limit to maintain vital services and avoid “questions about our ability to defend our national security interests,” Geithner said. The U.S. would face sharply higher interest rates and would have to stop or delay payments to the military, retirees and others, he said.
“Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover,” Geithner said. “For these reasons, default by the United States is unthinkable.”
Newly elected Republican lawmakers have been resisting a debt-limit increase while calling for extensive budget cuts. U.S. Senator Marco Rubio, a Florida Republican, has said he won’t approve a debt-limit increase without a range of tax-and- spending reforms.
“We need to use the debt limit itself as the way to ensure that America’s debt limit begins to decline, not always go up,” Rubio said in a March 29 television interview with Fox News. “How about the debt limit starting to go down? These are the kinds of things that I hope we’ll focus on.”
Geithner said in his letter today that spending cuts can’t provide the cash needed now, and he warned that the Treasury’s projections won’t change in a way that would give Congress extra time. He also said it would not be “viable” for the U.S. to sell gold, financial investments or student loans.
“There is no alternative to enactment of an increase in the debt limit,” Geithner said. He said that increasing the limit “does not increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations that Congress has already established.”
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said last week that companies, insurance funds and investors would lose access to markets if the U.S. appears to be headed toward a default related to its debt limit.
“If the United States actually defaults on our debt it would be catastrophic,” Dimon, 55, said at a March 30 U.S. Chamber of Commerce event in Washington.
Dimon, who’s also chairman of New York-based JPMorgan, the second-biggest U.S. bank by assets, said the U.S. would be “crazy” to leave the debit-limit question unresolved and that market participants eventually would need to take “drastic action.”
“Companies like us, every single company with Treasuries, every insurance fund, every requirement, it will start snowballing,” Dimon said. “All short-term financing would disappear.”
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