From the Washington Post:
The U.S. government will hit the $16.4 trillion
federal debt limit on Monday and turn to “extraordinary measures” to continue
borrowing, the Treasury Department said Wednesday, beginning a countdown until
Congress either passes legislation to allow for more borrowing or the government
defaults on its debt.
Treasury Secretary Timothy F. Geithner said in a letter to senior lawmakers
that the Treasury would begin to undertake “extraordinary measures” in order to
forestall default. Geithner said the measures could create about $200 billion in
additional funding available to the government – giving Congress two months
before it must raise the debt limit.
More from The Hill:
Under normal conditions, that would buy policymakers about two months to haggle over the debt limit before an increase would be required, Geithner said. The last time the government reached its debt limit, in May 2011, Treasury’s measures delayed the need for a debt-ceiling increase until August.
But the uncertain fate of the nation's tax and spending policies in the talks over the fiscal cliff has clouded Treasury’s calculations, Geithner said.
If policymakers do not strike a deal and the U.S. goes over the fiscal cliff, the combination of tax hikes and spending cuts is expected to push the U.S. economy into a recession.
Going over the cliff would actually buy Congress more time to strike a debt-limit deal, since the increased revenue and reduced spending would reduce the need for the government to borrow funds, Geithner said.
Lawmakers will get a more precise timeline on the debt limit once the policy outlook clears, Geithner said.
Click here for some Q and A about the debt ceiling, which is defined as the: statutory limit on the amount of U.S federal debt held by the public and the government's own accounts. The debt ceiling became law with the Second Liberty Bond Act of 1917, which helped finance the United States' entry into World War I.
The Congressional Research Service provides a nice history of the debt ceiling - a shorter one can be found here. Click here for the Wikipedia page about the most recent debt ceiling crisis in 2011.
In recent years, fights over spending in general have been waged over the level of the debt ceiling. It has been seen by some as another tool for restraining spending. Others argue that not raising the debt ceiling undermines the ability of the federal government to meet obligations that it has already committed itself to when it adopts a budget.
This has led to an argument that the the debt ceiling is unconstitutional because it violates the 14th Amendment's requirement that the credit of the US be maintained. The Obama Administration reportedly does not buy this argument.
