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USA: Government ‘weeks from debt default’

US Treasury Secretary Jack Lew. Picture: Getty

US Treasury Secretary Jack Lew. Picture: Getty

  • by JASON LANGE
 

THE United States Congress has been warned the federal government could start missing payments on its bills from 27 February if the limit on borrowing is not increased.

Treasury secretary Jack Lew said measures approved by President Barack Obama’s administration aimed at staving off a default would only allow three weeks’ leeway thereafter.

A 16-day federal shutdown in October cost US taxpayers about $2 billion (£1.22bn) in lost productivity and laid off 850,000 employees.

It was triggered because the House of Representatives, controlled by the Republicans, and the Senate, controlled by Obama’s Democrats, could not agree on borrowing levels.

Rows were focused on funding for the landmark “Obamacare” health act, the biggest shake-up of the US paid-for healthcare system since the 1960s.

The Republicans eventually relented in the face of public anger and approved funding until this month.

By 27 February, when those funding measures are again exhausted, the government anticipates having roughly $50bn in cash which it would have to burn through to pay its bills. The money would not last long, the administration said.

“Any foreseeable cash balance would be exhausted quickly,” Lew warned in the letter to House leaders. It would then “be impossible for our nation to meet all of its obligations,” he added.

Since 2011, politicians, particularly the right-wing Tea Party in Republican ranks, have balked at raising the borrowing ceiling amid a debate over America’s long-term fiscal health, with the Democrats and Republicans at odds over the need for tax increases versus spending cuts.

Gridlock over the debt ceiling has brought the US perilously close to default, rattling financial markets. Businesses fear greater uncertainty will increase borrowing costs.

Some Republicans are eager to extract concessions from Obama in return for lifting the debt limit, but they are not agreed on their demands.

Republicans have pencilled in a possible vote on the borrowing cap for this week. “I respectfully urge Congress to move as quickly as possible to raise the debt limit,” Lew said.

Republican House leader Eric Cantor said on Friday he would leave a slot open in his weekly schedule for “possible consideration of the legislation related to the debt limit” on Wednesday – a sign that his party may be ready to put forward its demands to permit the $16.7 trillion borrowing cap to be increased.

Some Republicans and aides said possible conditions include the elimination of military pension cuts approved in December. These would be a far cry from past demands for big cuts and might be acceptable to the Democrats.

The Senate is set to begin considering a bill this week that would eliminate pension cuts for able-bodied military retirees of working age, which may satisfy the Republicans, though it is unclear how this would be funded.

Unlike past disputes over the borrowing limit, the Republicans seem keen to avoid being seen as too partisan or threatening, a posture which would unsettle the markets.

If the US government started missing payments, the rapid contraction in spending would weigh heavily, possibly triggering a financial panic and a full-blown recession.

An influential group of American chief executives has urged Congress to swiftly pass a debt limit increase.

“Any default by the federal government on its debts would cause devastating, long-lasting effects for all Americans,” AT&T chairman Randall Stephenson and United Technologies Corp chairman Louis Chenevert said in a letter to leaders. The House has only seven more legislative days scheduled through to the end of February in which to pass a debit-limit increase.

 

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