News Column

Lew Warns of Gov't Default as Debt Ceiling Looms

September 25, 2013
Debt ceiling

The United States government will probably have less than $50 billion in cash in mid-October when the government exhausts its legal borrowing capacity as revenues have come in a little slower than expected in recent weeks, Treasury Secretary Jack Lew warned Tuesday.

Speaking at the Bloomberg Markets Top 50 Summit in New York, Lew said the Treasury is expected to have less than $50 billion in cash by mid-October, which is not be enough to meet all of the state`s commitments, which include salaries, social security payments, and other obligations.

The government has been scraping up against its $16.7 trillion borrowing authority since May but has avoided defaulting by applying "extraordinary measures" to manage its cash, such as suspending investments in pension funds for federal workers.

Lew repeated that the Obama administration will not negotiate with Congress over increasing the nation's $16.7 trillion borrowing cap, insisting that it is Congress`s job to make sure the government can pay all of its bills. With a series of potential disasters hovering over the nation like a potential shutdown and the need to raise the debt limit, both are being used for leverage in attempts to undermine President Barack Obama`s signature health insurance law, the Obamacare.

The House of Representatives, led by conservative Republicans, has linked the Government funding process to defunding the Obamacare.

Furthermore, a debt ceiling impasse and a government shutdown, of which could happen by next month, would disrupt financial markets and hurt the economy. However, the U.S. most likely won`t lose its prized triple-A credit rating Moody`s Investors Service said Tuesday.

Moody`s rates the U.S. at Aaa with a stable outlook, while Fitch rates the country with a triple-A with a negative outlook after Standard & Poor`s downgraded the U.S. rating from AAA to AA-plus in August 2011 during a previous round of debt ceiling debates.

U.S. Treasuries prices rose on Wednesday where the benchmark 10-year note gained 0.3 percent, yielding 2.658, after falling five basis points, or 0.05 percent, to 2.66 percent at 5 p.m. in New York. The bond market extended its bullish momentum sparked by last week`s Fed decision to maintain its current $85-billion-a-month bond buying.

Fewer asset purchases would hurt bond prices and drive yields higher. Meanwhile, the dollar had shown some intra-day gains on Wednesday yet remains near its 3-week low as investors fret about an impasse over the U.S. budget that could lead to a shutdown of parts of the economy.

The greenback remains pressured as U.S. lawmakers are approaching a Monday night deadline to find a deal on a new budget. If no agreement is reached some government agencies could be forced to shut down, which could deal a major blow to the economic recovery.

The USDIX index is currently trading around 80.66 from the session's opening of 80.69 after hitting a high of 80.75 and a low of 80.64.

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Original headline: Lew Warns Investors of Government Default as Debt Ceiling Deadline Looms

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Source: (c) 2013 ICN.COM. ALL RIGHTS RESERVED Provided by an company

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