Treasury extends debt ceiling window to Aug. 2

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.