The U.S. government will hit its debt limit no later than Nov. 3, Treasury Secretary Jacob Lew said in a letter to Congress Thursday, calling on lawmakers to raise the debt ceiling “without delay.”
By Nov. 3, Treasury will have less than $30 billion to meet commitments that can range up to $60 billion on a given day, Mr. Lew said, despite “extraordinary measures” taken to preserve borrowing capacity. Those measures include suspending payments into the $443.3 billion Thrift Savings Plan's G Fund, which had $204.6 billion in assets as of Sept. 30. Those payments will be made, with interest, once the debt limit is raised.
“Operating the United States government with no borrowing authority, and with only the cash on hand on a given day, would be profoundly irresponsible,” said Mr. Lew. “We have learned from the past that failing to act until the last minute can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States. And there is no way to predict the irreparable harm that default would have on global financial markets and the American people, “Mr. Lew said.
Experts at the Bipartisan Policy Center, Washington, project the debt limit will be reached somewhere between Nov. 10-19, but “if policymakers want to avoid a crisis, they need to act well in advance of that window,” said Shai Akabas, associate director of economic policy, in an interview.
Of the government's $18 trillion in outstanding debt subject to the limit, $13 trillion is held by the public.
During the 2013 debt limit impasse, investors demanding a higher return on treasuries maturing when the debt limit was reached “ended up costing the taxpayers tens of millions of dollars,” and a decline in liquidity, Mr. Akabas said. “I wouldn't be surprised if that happens again.”
Steve Wood, chief market strategist for Russell Investments, said “the market has been dealing with this for some time now. The first debt crisis situation caused a lot of stress in the markets across the board. The likelihood that this will be a commensurate effect is lower,” said Mr. Wood in an interview, adding, “This is a great reminder why a global diversified strategy is necessary.”