US will reach debt limit in October

US will reach debt limit in October.

US Treasury Secretary Jack Lew is reminding policy makers that the clock is ticking – the US will reach its debt limit by mid-October and Congress needs to act quickly.

Jack Lew claims that failure to act soon could result in significant disruptions to US economy, the largest economy on the world. If the debt ceiling is reached, the US Government can no longer borrow money and as such, it will be unable to meet obligations such as pensions, military salaries and Medicare payments.

In a letter to House Speaker, Lew said that “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 it has on hand on any given day, he added.

This would place the United States in ‘an unacceptable position’, according to Lew. Such a scenario could undermine financial markets and result in significant disruptions to the economy.

In recent years, there have been tense debates between the White House and congressional Republicans over the government’s debt ceiling, spending cuts, and other fiscal matters. In January, the debt ceiling was last raised to $16.7 trillion.

In August 2011, the Republicans and the Democrats took a hard line while debating raising the borrowing limits. However, then they reached a compromise on the day the Government’s debt ceiling was due to be breached. The compromise included a series of automatic budget cuts known as the ‘sequester’ which came into affect earlier this year.

At that time, the delay in reaching a deal led ratings agency Standard & Poor’s to downgrade the US for the first time ever, which sparked volatility in the financial markets.

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