US to hit debt ceiling by 17 October: Treasury secretary

The US would hit its debt ceiling by 17 October at the latest, US  Treasury Secretary Jack Lew warned as he sought to pressure Congress to pass a bill that would extend its borrowing limit.

Lew added that after that date the government would be left with only half the cash it needed to keep the country running. He warned that any shortfall leaving it unable to pay its bills would be ''catastrophic'' for the entire US economy. 

"Treasury now estimates that extraordinary measures will be exhausted no later than October 17. We estimate that, at that point, Treasury would have only approximately $30bn to meet our country's commitments," he said in a letter to the house speaker, John Boehne.

"This amount would be far short of net expenditures on certain days, which can be as high as $60bn."

The debt ceiling was raised late last year, which effectively extended its credit limit and deferred the problem of how much it could afford to spend until a later date. However, Lew's forecast had made it  clear, that the country was perilously close to a new crunch point.

President Barack Obama and Congressional Democrats had said they would not negotiate over the debt ceiling, which they regarded as imperative for avoiding a government default and a government shutdown.

Lew's letter marked the first time he has given a clear date when the government would hit the debt ceiling and comes with Congress at another impasse over keeping the government running and paying its past bills.

According to Steve Bell, economic policy director for the Birpatisan Policy Centre, it was not a coincidence that 17 October was a Thursday.
He added, that was because the treasury typically rolled over $100 billion in debt every Thursday, as old bonds matured and most investors simply used the proceeds to buy new bonds.

Some bond holders might park their money elsewhere, with others demanding higher yields.

Expressing the same concern in a speech to the Economic Club of Washington last week, Lew said a massive sell-off of bonds could create an immediate crisis. He added, the point was trying to time a debt limit increase to the last minute could be very dangerous.

The US had been at the debt limit since 17 May and since then, the treasury department had undertaken what it called "extraordinary measures," which included delaying pension fund payments and drawing down an emergency fund.