US Treasury Secretary Jack Lew has warned that the government will reach its debt limit by mid-October unless Congress acts quickly.
The debt ceiling was last raised in January. The government can no longer borrow if it is reached.
Jack Lew said that in such a case it will be unable to meet obligations such as pensions, military salaries and Medicare payments.
The country’s borrowing limit is currently capped at $16.7 trillion.
“Extraordinary measures are projected to be exhausted in the middle of October,” Jack Lew said in a letter to House Speaker John Boehner and other lawmakers.
“At that point, the US will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day,” he said.
The cash balance at that time is forecast to be about $50 billion, which Jack Lew said, would be “insufficient to cover net expenditures for an extended period”.
He said: “Operating the government with no borrowing authority, and with only the cash on had on a given day, would place the United States in an unacceptable position.”
There have been tense debates between the White House and congressional Republicans over the government’s debt ceiling, spending cuts, and other fiscal matters.
In August 2011, the Republicans and the Democrats took a hard line while debating raising the borrowing limits.
They only reached a compromise on the day the government’s ability to borrow money was due to run out.
The delay in reaching a deal at that time led ratings agency Standard & Poor’s to downgrade the US for the first time ever, which sparked volatility in the financial markets.
The compromise also included a series of automatic budget cuts known as the “sequester” which came into affect earlier this year.
However, in his letter Jack Lew argued that raising the debt limit does not increase government but “simply allows Treasury to pay for expenditures [the] Congress has previously approved”.
He warned that a delay in raising the limit “would cause irreparable harm to the American economy”.
Jack Lew explained that if investors become unwilling to loan to the US, the country could face an immediate cash shortfall.
”Such a scenario could undermine financial markets and result in significant disruptions to the economy,” he said.