Treasury Secretary Jacob Lew urged Congress on Thursday to raise the US borrowing ceiling, warning that not doing so could jeopardize Washington’s creditworthiness and raise fears of a default.
With the US closing on the point where spending will surpass available funds, Lew said it was crucial for Congress to raise the debt cap as soon as it comes back into session at the beginning of September.
Failure to raise the ceiling would force cuts to many parts of the government, including the military and social security benefit payouts, and “have disastrous effects for our nation,” Lew told an audience in Mountain View, California.
“In just a few weeks, we will find ourselves once again perilously close to breaching the debt ceiling if Congress fails to act,” he said.
Lew pointed to a 2011 fight over the ceiling that went down to the wire, raising fears that the country would be forced to default on its debt.
Even after politicians struck a last-minute deal to raise it — in exchange for longer term spending reductions — the rating agency Standard and Poor’s cut the US credit grade for the first time ever, reducing it one notch from the gold-plate AAA standard.
“While that standoff was eventually resolved, the cloud of doubt that took hold and the high-stakes drama that took place harmed the economy,” Lew said.
“The drawn-out dispute over the debt ceiling caused business uncertainty to jump, consumer confidence to drop, financial markets to fall, and economic growth to falter.”
“We cannot afford a repeat of what happened in 2011. We cannot afford for Congress to wait until some unknowable last minute to resolve this matter on the eve of a deadline. We cannot afford another unnecessary self-inflicted wound.”
The Treasury’s borrowing power was frozen in May at 16.7 trillion, and since then it has deal with spending obligations through some temporary adjustments to funds use and also has benefitted from higher-than-planned revenues.
Lew said earlier this year that the room created by those measures could dry up by September, but the Congressional Budget Office estimates the country could go to November before being forced to cut back spending.