Another Debt Ceiling Fight Looms

January 8, 2014

Once again, the U.S. government could run out of borrowing authority needed to help pay its bills as soon as February if lawmakers do not work to swiftly raise the federal debt ceiling.

In October, President Barack Obama signed legislation that ended the 16-day government shutdown and allowed the Treasury Department to sell bills, notes and bonds without exceeding the borrowing cap—$16.7 trillion—until Feb. 7, 2014. After this date, the government once again will hit its borrowing limit and Congress will have to raise the debt ceiling. If it doesn’t, the government could default on its loans by late February or early March.

In December, Treasury Secretary Jack Lew sent a letter to lawmakers asking them to raise the nation’s borrowing authority “well before” the February deadline.

“I am writing to urge Congress to take prompt action to protect the full faith and credit of the United States by extending the nation’s borrowing authority,” he wrote in a letter to House Speaker John Boehner (R-Ohio), and other congressional leaders. “The American public expects its leaders to put an end to governing by crisis and to focus on promoting economic growth and job creation. I respectfully urge Congress to take action to raise the debt limit at the earliest possible moment and ideally well before February 7, 2014.”

Last year, Lew was able to use “extraordinary measures” to keep from borrowing money for six months after the debt limit took effect. However, Lew does not believe he will have much room to maneuver this time as in previous debt limit crises. According to him, after late February and early March, the U.S. will no longer be able to borrow to cover its expenses.

The Congressional Budget Office (CBO) provided a similar estimate in a report in November but left open the possibility that those measures could last longer if the Treasury can get through tax season. “Depending on the timing and magnitude of tax refunds and receipts in February, March and April, the Treasury might be able to continue borrowing into May or early June,” the CBO said.

The president and Democrats in Congress have continued to call for a clean, prompt vote to raise the debt ceiling with no strings attached. They have also warned that a failure to raise the debt ceiling before the nation’s borrowing authority expires could invite the calamitous prospect of a default on U.S. sovereign debt. Meanwhile, some Republican leaders have said they would not support raising the debt ceiling without additional spending cuts and therefore, a clean debt ceiling increase is unlikely to pass through both chambers.