US to reach debt limit on New Years Eve

The United States government will reach its statutory 16.39-trillion-dollar debt limit -- a ceiling imposed by Congress -- on Monday, Treasury Secretary Timothy Geithner said.

In a letter Wednesday to Senate Majority Leader Harry Reid, Geithner said the treasury would take "extraordinary measures" to postpone the day the US could default on its liabilities, but could not say how long it had.

Geithner warned that if the White House and US lawmakers fail to agree on a budget compromise to prevent the economy plunging over the "fiscal cliff", also due on December 31, then he could not be sure when the money would dry up.

He said the extraordinary measures -- halting the issuance of securities to state and local governments -- could create approximately $200 billion in headroom that under normal circumstances would last about two months.

But he added: "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."

As of midday (1700 GMT) Friday, the United States will "begin taking certain extraordinary measures authorized by law to temporarily postpone the date the United States would otherwise default on its legal obligations."

The suspended securities are low-interest instruments given local and state government to allow them to invest proceeds from their own bond sales.

They are often suspended when the government is in talks to avoid breaching a debt ceiling.

Geithner's letter came as the White House and Republican lawmakers were locked in an impasse about the "fiscal cliff," a package of steep tax hikes and spending cuts that are due to take effect in January.

Experts say a failure to strike a compromise on the matter by New Years Eve could plunge the world's biggest economy into recession, and wrangling over the debt ceiling will only increase the political and economic uncertainty.

Already in mid-2011, Washington went through a vicious political battle over raising the debt ceiling. In the end, the fight culminated in the poison pill compromise that has become the fiscal cliff.

--

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