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Wednesday, September 11, 2013

US could default on its debt obligations by mid-October, thinktank warns

Bipartisan Policy Center says default could come unless Washington agrees new legislation to raise borrowing limit

Associated Press in Washington
Tuesday 10 September 2013 13.42 EDT
The US government has never defaulted on its obligations. Photograph: Michael Reynolds/EPA

The United States could default on its obligations as early as October 18 if Washington fails to agree on legislation to raise the government's borrowing cap, a new study predicted Tuesday.

The Bipartisan Policy Center analysis says the default date would come no later than November 5, and that the government would quickly fall behind on its payments, including social security benefits and military pensions.

The thinktank's estimate is in line with a warning last month by Treasury Secretary Jacob Lew that the government would exhaust its borrowing authority by mid-October and be left with just $50bn cash on hand.

The government has never defaulted on its obligations. Raising the $16.7tn borrowing cap promises to be a major struggle for House Republicans and President Obama.

Two years ago Obama agreed to pair a $2.1tn increase in the debt limit with an equivalent amount in spending cuts spread over 10 years. But the president now says that he won't negotiate over the debt limit and is asking Congress to send him a straightforward increase that would ensure the government can pay its bills.

In January, House Republicans permitted an increase in the debt ceiling without demanding offsetting spending cuts.

It's commonly agreed that failure to increase the debt limit on time would roil financial markets and lead to a downgrade of the government's credit rating. The political fallout would also be intense, especially if Social Security benefits are delayed.

Tuesday's study predicts that if the default date — which is when the government cannot pay its bills in full and on time — comes on October 18, the subsequent social security payments due on November 1 could be delayed by almost two weeks.

SOURCE Guardian