US hits debt ceiling with ‘cliff’ still unresolved

PUBLISHED : Tuesday, 01 January, 2013, 8:22am
UPDATED : Thursday, 29 August, 2013, 4:13am


The US Treasury said the country would hit its debt ceiling on Monday as expected, forcing it to take measures to keep funding the government while political leaders battle over the deficit.

The Treasury said it would adjust its handling of civil service pension fund assets to be able to keep operating under the US$16.394 trillion borrowing limit without slashing federal spending, suggesting it could do this for at least two months.

“We will reach the statutory debt limit today,” a Treasury official told reporters.

In an official letter to Congress, the Treasury detailed the extraordinary measures it would undertake to keep the government afloat for an undisclosed  period of time that will depend on raging political battles in Washington.

The statement came as Democrats and Republicans continued to joust over measures to correct the country’s deep deficit, with a last-minute deal in the works late Monday to avert the steep tax increases of the fiscal cliff.

But the deal appeared not to include any increase in the congressionally-mandated official debt ceiling, as US President Barack Obama had demanded.

That left open the possibility of another showdown like that of July last year over how to bridge the fiscal deficit and reduce the debt load.

The brinksmanship over the ceiling last year led to Standard & Poor’s cutting the US’s top-level AAA credit rating for the first time in history, putting it at AA-plus with a “negative” outlook.

On Friday S&P said that any deal to fix the fiscal cliff package of economy-crunching tax hikes and spending cuts would not help the country’s credit rating.

In last year, S&P said, its downgrade was rooted in “the political brinkmanship of recent months [that] highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable”.

“We believe that this characterisation still holds,” it said on Friday.