WASHINGTON: The US Treasury hit its $14.29 trillion legal limit on borrowing Monday, as the White House sternly warned lawmakers they must approve an increase or risk a catastrophic default on debt payments.
With Washington in the grips of an all-out political war over government finances, US Treasury Secretary Timothy Geithner formally notified congress that the government had slammed into its debt ceiling and urged an increase.
The secretary warned Democratic Senate Majority Leader Harry Reid in a letter that the United States would exhaust temporary remedies come August 2 and will face a choice between draconian spending cuts or a possible default.
Geithner urged lawmakers to approve a debt ceiling increase "as soon as possible," saying action was needed "to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens."
Reid had no immediate reaction, but a spokeman for Republican Senate Minority Leader Mitch McConnell, Donald Stewart, played down the need for urgent action and said runaway spending posed the bigger threat.
"Members on both sides of the aisle acknowledge that failing to bring down the debt would be more damaging to our nation's economy in the long run than failing to raise the debt ceiling," said Stewart.
Vice President Joe Biden has been hosting talks with top Republicans in a bid to agree on what long-term spending cuts should be tied to a debt ceiling increase that lawmakers were ultimately all-but-certain to approve.
To avoid topping the ceiling, Geithner said the government would halt the automatic cycling of civil service pension funds into US Treasury debt, the way they are traditionally stored, he said.
The move will give the Treasury about $224 billion dollars of headroom as it meets new borrowing needs to cover the government's mounting budget deficit, which rose an average of $124 billion per month since October.
White House spokesman Jay Carney said Geithner had taken "extraordinary measures" to provide "some cushion" to the government to August 2 but pressed lawmakers not to delay action to raise the ceiling.
"We need to have a vote to lift the debt ceiling because the consequences of not doing so would be quite serious indeed, and those who suggest otherwise are whistling past the graveyard," said Carney.
"It's a foolish thing to suggest that we can somehow, as the United States of America, default on our obligations and that it would not have seriously negative consequences if we suddenly stopped paying our bills," he added.
President Barack Obama's Republican foes have warned they will thwart any attempt to lift the debt ceiling unless his Democratic allies agree to massive long-term spending cuts, chiefly to beloved social programs.
Democrats say they know Washington must tighten its belt but have blasted Republicans for flatly ruling out raising taxes and bloodied them for calling for cuts to the Medicare health care program for the elderly and disabled.
Some Democrats on the party's left wing also complain that spending cuts will stall the economic recovery and risk leaving in the lurch millions of Americans hunting for jobs.
While lawmakers were expected to vote on raising the debt ceiling before the critical August deadline, the overall war over spending and taxes was expected to drag out through Obama's 2012 reelection bid.
Yields on US Treasury bonds, which indicate how markets view the risk in the debt, fell Monday as investors shrugged off the ceiling issue for the moment.
The 10-year Treasury bond was at 3.17 percent, close to its 3.14 percent low for 2010, while the 30-year bond was at 4.3 percent, also slightly over the low for the year.
Carney said the White House had pursued "regular consultations" with lawmakers "who are approaching this issue seriously and looking at the need to address it in a balanced way."
"This president is committed to doing something significant and serious about our long-term deficit and debt problem and this is an opportunity to address that," he said.