The Treasury Department now estimates that the federal government will reach its legal debt limit no later than May 16, although it could use “extraordinary measures” to avoid default through July 8.
Some members of Congress have suggested that refusing to raise the debt limit would be an effective way to curb government spending. But defaulting on the debt is hardly a realistic option, for reasons outlined by Treasury Secretary Tim Geithner in a letter to Congress on Monday.
Failure to increase the limit, Geithner wrote, would mean “a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds.” It would also cause a financial crisis “potentially more severe than the crisis from which we are only now starting to recover.”
In February the Government Accountability Office (GAO) issued a report that also warned that delayed action on the debt limit could have a number of negative consequences, including disruptions in the financial markets and higher borrowing costs. The GAO suggested that decisions about the debt level should occur, as in some other countries, "in conjunction with spending and revenue decisions as opposed to the after-the-fact approach now used."