US hits debt ceiling, begins pullback

WASHINGTON: The US Treasury warned of economic catastrophe on Monday as it ran into its $14.29 trillion ceiling on borrowings and began short-term measures to delay breaching the limit.

In a letter to US Senate leader Harry Reid, Treasury Secretary Timothy Geithner said the country had reached the statutory debt limit as of Monday and was initiating a "debt issuance suspension period" to keep from going over it.

Geithner urged Congress to raise the ceiling "in order to protect the full faith and credit of the United States and avoid catastrophic consequences for citizens."

To avoid topping the ceiling, 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 an estimated $120 billion a month in net new borrowing needs to cover the government's mounting budget deficit.

However, by August 2, according to Treasury projections, spending requirements will exhaust the temporary measures and the government will have to either slash spending on existing obligations or possibly default on its debts.

In a letter to another senator on Friday, Geithner warned that failure to increase the debt limit "would force the United States to default on the obligations, such as payments to our service members, citizens, investors, and businesses."

"Default would not only increase borrowing costs for the federal government, but also for families, businesses, and local governments - reducing investment and job creation throughout the economy," he told Senator Michael Bennet.