The United States is set to run out of borrowing authority in mid-October, leaving the government at a high risk of not being able to pay for Social Security checks, military salaries and other operations, the Obama administration said Monday.
The announcement, which comes at the early end of what many in Washington were anticipating, creates a new crisis point in the nation’s protracted fight over the size and role of government.
Republicans are demanding significant new spending cuts in exchange for increasing the nation’s $16.7 trillion debt limit, with some GOP lawmakers insisting on a delay or the scrapping of President Obama’s signature health-care law.
Obama, meanwhile, says he will not negotiate on the debt limit, the government’s legal cap on borrowing.
With the two sides far apart, there is no clear path to resolving the differences. Not raising the limit would ultimately lead to a default, undermining the nation’s credit.
The Obama administration on Monday did not indicate the date that such a default might occur. Rather, it said that it expects to have only $50 billion in cash on hand in mid-October, with no ability to borrow more.
That amount would not cover the nation’s spending for long, Treasury Secretary Jack Lew said in a letter to congressional leaders.
He added that if the debt limit is not raised, investors who own trillions of dollars in U.S. government bonds could begin to refuse to lend money to the nation.
“Such a scenario could undermine financial markets and result in significant disruptions to our economy,” Lew said.
Steve Bell, economic policy director at the Bipartisan Policy Center, said lawmakers should not take comfort in the $50 billion the Treasury will have once it runs out of borrowing authority.
The amount of money coming in and out of federal coffers fluctuates wildly, he said, adding that the $50 billion might last only three or four days.
“We think the $50 billion cash balance indicates that Lew is right to raise the borrowing authority before mid-October,” Bell said. “People may think it’s a big number, but these intergovernmental transfers that are paid every month to Social Security and Medicare are as big as $30 billion in one day.”
The U.S. government formally hit the ceiling on what it could borrow in May. Since then, Treasury has deployed a variety of accounting techniques to continue to borrow. In addition, a sharp decline in spending this year and repayments from bailed-out mortgage finance giants Fannie Mae and Freddie Mac eased the need for the government to rely on debt.
Now, Congress must raise the debt limit sooner than many expected — and it’s not the only deadline fast approaching.
Separately, the White House and Congress face a deadline at the end of next month to renew regular funding for government operations — or risk a shutdown. In a shutdown, many agencies would close but “essential” functions, such as Social Security and Medicare payments, would continue.
Congress is in session for only nine days in September, leading to expectations that lawmakers may pass a budget measure to fund the government for a few weeks or months.
But there’s no guarantee — mainly because of partisan disagreement about whether to continue the automatic spending cuts known as the sequester that are slicing defense and domestic agency budgets.
Republicans favor restoring funding to the Pentagon while cutting domestic programs even more deeply. But Democrats want to roll back the automatic defense and non-defense cuts — in part through alternative spending reductions and tax increases on the wealthy.
Although Democrats say they are happy to debate how to fund the government, they add that they won’t negotiate over the separate issue of the debt ceiling.
Rep. Chris Van Hollen (Md.), the ranking Democrat on the House Budget Committee, said Republicans ought not put the nation’s creditworthiness at risk by demanding concessions in return for raising the debt limit.
“I don’t think the American public is going to stand for playing with what remains an economic weapon,” he said. “Playing around with the debt ceiling will create unnecessary economic harm.”
But House Republicans on Monday linked the two debates. They said they will insist that any increase in the debt limit be offset dollar for dollar by other spending cuts or cost-saving changes to federal programs — a principle established by House Speaker John A. Boehner (R-Ohio) two years ago.
“The debt limit remains a reminder that, under President Obama, Washington has failed to deal seriously with America’s debt and deficit,” Boehner spokesman Michael Steel said.
The White House and Republicans have been fighting over the debt since 2010 — a series of debates that have linked questions about taxes and spending to the bigger issue of whether to raise the limit.
In the summer of 2011, such clashes led the government to come within days of a default before an agreement was reached to increase the debt ceiling through the beginning of 2013. Many economists say that episode led to uncertainty that harmed the economy.
At the start of this year, Republicans agreed to suspend the debt limit for several months while they crafted a broader fiscal strategy. Republicans are continuing to draft that playbook, with ideas centering around changes to entitlements, among other issues.
On Monday, the White House reiterated that although it will negotiate over the budget, the debt ceiling must be handled separately.
“We have never defaulted, and we must never default,” press secretary Jay Carney said. “That is our position, 100 percent, full stop.”