The White House is warning that the US could be teetering on the abyss of defaulting on its legal obligations later this month. Treasury Secretary Jack Lew issued a stark warning on Sunday that Congress would be “playing with fire” if it failed to raise the US debt limit later in October.
“If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default,” Lew said. “There is no option that prevents us from being in default if we don’t have enough cash to pay our bills.”
“I’m telling you that on the 17th, we run out of our ability to borrow, and Congress is playing with fire.”
On October 17, the US government will reach its $16.7 trillion federal borrowing ceiling and the government, running out of cash, will default on its debts unless the limit, set by Congress, is raised by then.
The US has never defaulted on its debts before and a default could plunge the world’s largest economy into an unpredictable economic and political void it’s never seen in its history.
US Treasury Department said in a report Thursday that a default could have catastrophic consequences that could last for years to come.
“Not only might the economic consequences of default be profound, those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation,” the Treasury said.
The specter of a default has given rise to political arm-twisting with the feuding parties trying to get the most concessions from their rival.
US President Barack Obama is demanding a deal with the Republican lawmakers to raise the debt ceiling to avoid a default but Republicans have raised the threat of a default if Obama refuses to negotiate on a budget bill.
Speaker John Boehner said the Republican-dominated House would not “pass a clean debt limit increase” unless the White House gives concessions.
“I told the president, there’s no way we’re going to pass one. The votes are not in the House to pass a clean debt limit. And the president is risking default by not having a conversation with us,” Boehner said.
The US is currently grappling with a partial government shutdown that has furloughed over 800,000 government workers after Republicans and Democrats failed to agree on a plan to keep financing federal agencies. Republicans they would agree to reopen the government on condition that major changes are made to Obama’s health care law, known as Obamacare. Democrats reject the demand as unacceptable calling it a ransom.