Treasury extends debt ceiling window to Aug. 2

By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney) -- The fallout from lawmakers' delay on the debt ceiling is getting real.

Treasury Secretary Tim Geithner said Monday that he would start taking "extraordinary measures" this week to keep the country's debt below its legal limit.

In a letter to Congress, he also said that he now estimates he can keep the country out of default until Aug. 2, three weeks later than he estimated last month.

The reason for the extension: The government has taken in more tax revenue than expected -- easing the country's borrowing needs.

He said, however, the pace of U.S. borrowing is still on track to hit the current $14.294 trillion debt ceiling by May 16.

But Geithner said he would need to take action starting this Friday because Congress is unlikely to act by May 16 and the debt is already so close to the cap -- just $58 billion below as of the end of last week.

The Treasury Department will suspend issuance of special Treasury securities that help state and local governments fund, among other things, infrastructure improvements, Geithner said.

That will be the first of several steps Geithner will have to take the longer Congress delays action on the debt ceiling.

Republicans and some Democrats say they will not support an increase to the debt ceiling unless it is accompanied by spending cuts and enforceable budget measures designed to keep spending or deficits down. And agreements on those types of measures will take some time.

Some lawmakers mistakenly believe that not raising the debt ceiling would somehow tamp down future spending.

Geithner pushed back on that argument again on Monday. "The debt limit has never served as a constraint on future spending, nor would refusing to increase the debt limit reduce the obligations the country has already incurred."

Indeed, as the Congressional Research Service has noted, even if lawmakers never pass another spending increase or tax cut, the debt ceiling would need to be increased repeatedly in the future.

As it is, the Treasury Department also estimated Monday that the country will need to borrow $547 billion during the second half of this fiscal year, which ends Sept. 30.

If the debt ceiling isn't raised, lawmakers will have two choices: Either cut spending or raise taxes by that amount, or let the country miss payments on many of its legal obligations.

Geithner said missing any payments would amount to default, a step the United States has never taken and which could have "catastrophic economic impact that would be felt by every Americans."

By way of example, he noted that a broad range of government payments would have to be stopped, limited or delayed. In addition, interest rates and borrowing costs would rise and Americans' home values and retirement savings would get hit.

Some Republicans who are using the debt ceiling to extract fiscal concessions, however, say the country will not be in default so long as it continues to pay interest on its bonds.

There will be sufficient revenue coming in to meet those interest payments, but Treasury would come up short by about $118 billion every month, and that could have severe consequences on government services and benefits.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,805.41 127.51 0.76%
Nasdaq 4,483.72 30.92 0.69%
S&P 500 1,964.58 13.76 0.71%
Treasuries 2.27 -0.00 -0.09%
Data as of 12:17am ET
Company Price Change % Change
Ford Motor Co 13.78 -0.62 -4.31%
Microsoft Corp 46.13 1.11 2.47%
Apple Inc 105.22 0.39 0.37%
Bank of America Corp... 16.72 0.12 0.72%
Yahoo! Inc 43.50 0.90 2.11%
Data as of Oct 24

Sections

New York headlines took a straight forward and direct approach with NYC's Ebola news. More

The midterm elections are around the corner, and the economy remains a top concern. With unemployment down and inflation low, why do people still feel the economy stinks? More

Shares of Facebook recently topped $80. They've more than quadrupled from their post-IPO lows of two years ago. Can Mark Zuckerberg keep the momentum in mobile going? More

Using technology developed for the military and implemented in Iraq, schools have installed alarm systems that detect gunfire. More

If you're looking to fly this holiday season, the clock's ticking to get the best prices. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.