US Treasury Secretary Timothy F Geithner yesterday urged lawmakers to raise the federal debt limit in the first quarter of 2011, saying a failure to act could make it impossible for the US to access global credit markets.
If congress does not raise the debt limit, "the treasury would be forced to default on legal obligations of the US, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009", Mr Geithner said in a letter to speaker of the house John Boehner, senate majority leader Harry Reid and all other members of congress.
The treasury estimates the debt limit could be reached as early as March 31, and "most likely" between that date and May 16. The debt limit stands at $14.29trn (€11trn), leaving about $335bn of "headroom", Mr Geithner's letter said.
Mr Boehner, a republican from Ohio, said in a statement that congress needs to pair a debt-limit increase with spending cuts and changes to a "broken" budget process.
He said the country can't afford default or to "recklessly" keep borrowing.
"The American people will not stand for such an increase unless it is accompanied by meaningful action by the president and congress to cut spending and end the job-killing," Mr Boehner said.
Obama administration officials said they want to separate the debt limit from other fiscal policy concerns. In a briefing with reporters, a treasury official predicted congress would act to avert a crisis.
The debt limit should be resolved without being tied to long-term fiscal issues including spending and taxes, the treasury official said. Lawmakers will probably agree to raise the limit because of the idea that the US could default, the official said.
The US had a $1.3trn federal budget deficit in fiscal year 2010, ended September 30. President Barack Obama's debt-reduction panel failed last month to agree on ways to reduce the annual deficit to about $400bn in 2015.
Lawmakers are likely to wait "until the last minute" to pull back from the brink, said Stephen Stanley, chief economist at Pierpont Securities.
He predicted the house would seek concessions from the senate and the White House, using the debt ceiling as leverage.