US Treasury Secretary Timothy Geithner has warned that the US government’s borrowing will reach its debt limit on New Year's Eve.
On Wednesday, Geithner said in a letter to Congress that on December 31 the government will reach its statutory 16.39-trillion-dollar debt limit, which is a ceiling imposed by Congress, AFP reported.
"I am writing to inform you that the statutory debt limit will be reached on December 31, 2012," Geithner said in the letter, adding that the Treasury Department will soon take “extraordinary measures” to stave off default.
“The Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations," Geithner said.
He noted that the measures, including suspending the sale of some Treasury securities, are expected to create “$200 billion in headroom,” which would buy a couple months' time under normal circumstances.
“However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures," Geithner pointed out.
Secretary Geithner also warned that if the White House and US lawmakers fail to reach a deal on the so-called fiscal cliff, also due on December 31, he could not be sure when the money would dry up.
"If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures," he wrote.
The fiscal cliff refers to a combination of tax increases and spending cuts that are set to come into force on January 1, unless Republicans and Democrats can come together with an alternative budget plan. Economists warn that such a shock could send the economy back into recession.
Republicans and Democrats are still at loggerheads over the terms of a deal on how to avoid $680 billion in automatic increases in taxes and spending cuts.
Talks between Obama and congressional leaders collapsed on December 20 when Republicans abandoned House Speaker John Boehner's backup plan, which called for raising taxes on those making more than $1 million a year.
Obama and members of the US congress left Washington on December 21 for a Christmas recess, with talks to avert the fiscal cliff in limbo.
The White House announced that President Barack Obama was to cut short his Hawaiian vacation to be back in Washington early Thursday for a final effort to cut a budget deal by New Year's Day.