AMERICA’S government has hit its debt ceiling of $14.3 trillion (£8.8 trillion), with President Obama threatening that a failure to raise the limit could trigger a devastating economic and financial crisis.
The White House and congressional Republicans are locked in a debate over the deficit and the debt ceiling.
While Obama says the US will “get serious about deficit reduction,” the President has argued against the “linkage” between the debt ceiling and America’s annual deficit, expected to hit $1.4 trillion this year.
Republicans are pushing for guarantees on deficit reductions before agreeing to a hike in the debt ceiling.
The treasury department says it can stave off default until 2 August by drawing on other sources of money to pay its bills.
Treasury secretary Timothy Geithner told Congress yesterday that he would start tapping into federal pension funds to free up borrowing capacity.
Geithner said he “will be unable to invest fully” in the civil service retirement and disability fund and the government securities investment fund.
“I again urge Congress to act to increase the statutory debt limit as soon as possible,” Geithner added, echoing Obama’s call.
“If investors around the world thought that the full faith and credit of the US was not being backed up, if they thought that we might renege on our IOUs, it could unravel the entire financial system,” Obama had earlier warned.
“We could have a worse recession than we already had, a worse financial crisis than we already had,” he said.
A report from the thinktank Third Way released yesterday said the US could plunge back into recession if inaction in Washington forced a debt default, with some 640,000 US jobs vanishing, stocks falling and lending activity tightening.
Vice president Joe Biden is leading talks between the White House and lawmakers over how to reduce massive US budget deficits and raise the credit limit.