U.S. Treasury to Hit Debt Limit in Mid-October

August 26, 2013, 3:48 p.m. ET

U.S. Treasury to Hit Debt Limit in Mid-October

Latest Timeline Could Step Up Pressure on Congress

DAMIAN PALETTA

WASHINGTON—The U.S. Treasury Department will hit its borrowing limit in mid-October and likely will no longer be able to pay all its bills soon after that time, people familiar with the matter said Monday. The timeline could step up pressure on Congress to decide whether to raise the debt ceiling in the coming weeks. Lawmakers remain split over whether to raise it or insist that increase be combined with a large deficit-reduction package.The White House has said that it will not negotiate with Congress over whether to raise the government’s borrowing limit and has called on lawmakers to move before financial markets react as they did in 2011, when haggling over lifting the debt ceiling triggered market turbulence. Treasury Secretary Jacob Lew last week said raising the debt limit allows the government to make payments that have already been authorized by Congress.

“Failing to raise the debt limit would not make these bills go away,” he said. “It would, though, have disastrous effects for our nation.”

The mid-October timeframe is sooner than many on Capitol Hill had anticipated. The government hit the borrowing limit several months ago, but Treasury has used emergency measures—such as suspending certain pension contributions—to buy more time for Congress to act. Some believed that the government’s improving fiscal condition—bolstered by rising tax revenue and money coming in from Fannie Mae and Freddie Mac—could give Treasury even more time, potentially until sometime in December.

The Obama administration, and many Republicans, have said that the country could face a financial crisis if the debt ceiling isn’t raised, in part because of fears that the government could default on interest payments on its debt, which could impact interest rates and the stock market.

But many Republicans have said the government should consider prioritizing payments to creditors in an emergency to avoid going into default. The White House has said this isn’t feasible. The government spends more than $3.5 trillion a year on a range of things, including Social Security benefits, road projects, the military, and foreign aid.

The Congressional Budget Office had estimated the U.S. government would exhaust all of its emergency measures sometime in October or November, but Treasury has declined to offer a specific timeframe.

The U.S. government has roughly $16.7 trillion in debt, and it continues to rise because the government spends more money than it brings in through taxes, fees and other revenue. The deficit—the annual gap between spending and revenue—has fallen sharply this year, but it is still expected to be around $600 billion.

In 2011, the White House and congressional Republicans locked in a bitter feud over whether to raise the debt ceiling. They had spent weeks working to craft a large-scale deficit-reduction agreement to package with an increase in the debt ceiling, but those talks collapsed in late July and financial markets swung wildly. The debt ceiling was increased in early August as part of the Budget Control Act, which set caps on certain spending levels and led to the across-the-board “sequester” cuts that began in March and will continue through 2021.