The US Secretary of the Treasury, Jack Lew, has warned that the USA will hit the maximum allowed borrowing ceiling by mid-October. Unless bipartisan agreement can be reached to increase the ceiling then the Federal government risks running out of money to meet its obligations for government salaries (including the military), pensions and Medicare payments. The current ceiling was agreed in January of this year and caps government borrowing at $16.7 trillion – about $83 500 per American citizen. According to World Bank figures, the US GDP was roughly $15.7 trillion in 2012, so these borrowing costs are now the equivalent of the nation’s GDP.
In his letter to House Speaker, John Boehner and other representatives, Mr Lew noted: "Extraordinary measures are projected to be exhausted in the middle of October. At that point, the US will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day. Operating the government with no borrowing authority, and with only the cash on hand on a given day, would place the United States in an unacceptable position."
By mid-October, the US cash balance is expected to be about $50 billion which will fall well short of the funds needed for the rest of 2013.
It is likely that another round of partisan brinkmanship will ensue as the majority Republicans in the House of Representatives try to get concessions from the governing Democrats (who hold the Senate), but in the end, national and global prerogatives should mean that an increase in borrowing will be approved. As Mr Lew cautioned in his letter any delay in raising the ceiling: “would cause irreparable harm to the American economy”. Certainly, if this does go to the wire, it will harm investor confidence and put the strengthening US recovery at risk.