US government takes emergency measures as it hits debt ceiling

The USD 14.29 trillion borrowing limit underscores the need for Congress to put in place a fiscal straitjacket like the CAP Act.

In a letter to Congressional leaders, US Treasury Secretary Timothy Geithner warned of "catastrophic economic consequences" if the ceiling is not hiked.

Earlier, Geithner tapped into two government employee pension funds to free cash of USD 12 billion for about two months by halting new investments in the Civil Service Retirement and Disability Fund and redeeming existing investments in that fund.

US Vice President Joe Biden is continuing with his talks with Congressional leaders to raise the debt ceiling.

"Failure to raise the debt limit would force the United States to default on these obligations, such as payments to our service members, citizens, investors, and businesses," Geithner said in a letter to Congressional leaders urging them to raise the debt limit.

"This would be an unprecedented event in American history. A default would inflict catastrophic, far-reaching damage on our nation's economy, significantly reducing growth, and increasing unemployment," he said.

"A default would call into question, for the first time, the full faith and credit of the US government. As a result, investors in the United States and around the world would be less likely to lend us money in the future.

"And those investors who still choose to purchase Treasury securities would demand much higher interest rates, reflecting the increased risk that we might default on our obligations again," he said.

"If we don't act -- if we allow the United States to default -- the day of reckoning will be much, much worse than today. Things will be much, much worse for Americans jobs, families and businesses than they already are. And the fallout will be felt around the world," Senate Majority Leader Harry Reid said on the floor of the Senate.

House Democratic Whip Steny H Hoyer said now that the US has reached the debt limit today, it is past time for Republicans to get serious and work with Democrats to ensure the nation pays its bills while laying out a path to reduce the deficit.

"The longer we wait to take responsible action, the more damaging it is to our economy," he said, adding that business -- and the global economy -- need certainty that the US will continue to pay its bills," White House Press Secretary Jay Carney told reporters.

"We are now in that period where we have essentially some cushion provided by the extraordinary measures the Treasury Secretary is able to take, as previous Treasury Secretaries have taken in a situation like this," he said.

"But it is a reminder that we need to have a vote to lift the debt ceiling because the consequences of not doing so would be quite serious, indeed.

"Those who suggest otherwise are whistling past the graveyard. It is a foolish thing to suggest that we could somehow as the United States of America default on our obligations and that it would not have seriously negative consequences if we suddenly stop paying our bills on a third of our obligations," he said.

"While some have suggested it will be catastrophic if Congress does not vote to increase the debt ceiling, I believe it will be more damaging if Congress allows this seminal moment to pass us by without finally getting our fiscal house in order.

"Before the debt ceiling is raised, Congress must put in place an enforceable mechanism like the CAP Act to slash unsustainable spending," demanded Senator Bob Corker in a statement.