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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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