WASHINGTON - The United States will hit the legal limit on its ability to borrow no later than May 16, US Treasury Secretary Timothy Geithner said on Monday, ramping up pressure on lawmakers to act to avoid a debt default.

"The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations," Geithner said in a letter to congressional leaders. "Default by the United States is unthinkable."

Previously, the US Treasury Department had forecast that the $14.3 trillion statutory debt limit would be reached between April 15 and May 31. As of Friday, government borrowing stood at just $95 billion from the ceiling.

Some lawmakers have sought to use the need to raise the debt limit to pressure the Obama administration into agreeing on large-scale budget cuts.

The debt-limit showdown comes as the US Congress struggles to complete a spending package that would keep the government operating beyond Friday.

Some lawmakers are seeking to use that bill to enact deep spending cuts and are focusing on a proposal to trim this year's budget by $33 billion, a relatively small amount compared with a projected $1.4 trillion deficit.

Geithner said that a failure to raise the debt ceiling in a timely way would push interest rates higher and spark "a financial crisis potentially more severe than the crisis from which we are only starting to recover".

Both Geithner and US Federal Reserve Chairman Ben Bernanke have said a failure to raise the ceiling could have "catastrophic consequences".

As the government nears the debt ceiling, the Treasury has the authority to take certain extraordinary measures to postpone the date the US would default on its obligations.

However, those actions would be exhausted after about eight weeks and there would be "no headroom" to borrow after July 8, Geithner said.

Some lawmakers have called for legislation to force the Treasury to first pay interest on US bonds before entitlement programs, such as unemployment benefits and Social Security and Medicare payments, as a way to stave off a debt default.

They have also asked the Treasury whether financial assets such as the country's gold reserves or the government's portfolio of student loans could be sold to avoid raising the debt ceiling.

The Treasury has rejected the proposals as unworkable.

"To attempt a fire sale of financial assets in an effort to buy time for Congress to act would be damaging to financial markets and the economy and would undermine confidence in the United States," Geithner said.

Based on estimates last year from the International Monetary Fund, debt as measured against the size of the economy in the US is higher compared with France, Canada and Germany, but less than Italy and Japan.

Geithner said that while the debt-ceiling projections could change, the Obama administration does not believe they could change in a way that would give Congress more time to raise the debt ceiling. He said the Treasury would provide updated projections in early May.

Reuters

(China Daily 04/06/2011 page14)