US could default on government debt ‘very soon,’ warns Treasury secretary

Jack Lew said country is again close to defaulting on its debts if it doesn’t raise the borrowing limit

Lew speaking about the need to raise the debt limit at the Bipartisan Policy Center in Washington, Feb. 3, 2014.
Saul Loeb/AFP/Getty Images

The Obama administration warned on Monday that it could start defaulting on the government's debt obligations "very soon" after it runs out of room to borrow under a legal cap on public debt.

Washington is due to end a suspension of its limit on borrowing at the end of this week, and Treasury Secretary Jack Lew said the administration can use accounting measures to stay under the cap until the end of February.

After that, "very soon it would not be possible to meet all of the obligations of the federal government," Lew said at an event hosted by the Bipartisan Policy Center, a prominent Washington think tank.

Washington has danced perilously close to the edge of default several times since 2011, and this year some Republicans pledge to extract policy concessions from Democrats before they allow the debt limit to rise.

The administration has vowed not to negotiate on the matter, and Lew said public finances are in good enough shape that long-term fiscal problems don't have to be solved this year.

It is unclear if Republicans, who are pressing for an overhaul of the government's health care obligations, will put up much of a fight over the debt ceiling. U.S. House Speaker John Boehner, a Republican, said last month America "shouldn't even get close to" default.

In October, Congress and the administration suspended enforcement of a $16.7 trillion cap on borrowing until Feb. 7. If the ceiling isn't raised by then, the Treasury can juggle government accounts for a few weeks to keep just under the limit.

Once it loses the ability to borrow, the Treasury would pay its bills by relying on incoming revenue and any cash left in public coffers.

Many economists think a U.S. default could trigger a financial panic and perhaps even a depression, and Lew urged lawmakers to act swiftly to raise the debt ceiling.

"Unnecessary delays or political posturing ... could snowball into a manufactured crisis," Lew said.

Al Jazeera and Reuters

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