Treasury Secretary Henry Paulson told Congress on Wednesday that the federal government will hit the current debt ceiling on Oct. 1.
He urged quick action to increase the limit, saying it was essential to protect the "full faith and credit" of the country, especially at a time of financial market turmoil.
The current debt limit is $8.965 trillion. Unless Congress votes to raise that ceiling, the country would be unable to borrow more money to keep the government operating and to pay debt obligations coming due. The United States has never defaulted on a debt payment but the decision on whether to raise the debt ceiling often sparks a prolonged political battle in Congress.
In his letter to congressional leaders, Paulson said that according to data now available, the Treasury expects to hit the current debt ceiling on Oct. 1 — the first day of the new federal budget year. However, that projection does not take into account maneuvers the government often has to employ of withdrawing investments from certain trust funds to create room for extra borrowing until Congress finally approves a debt increase.
"The full faith and credit of the United States, to which we all remain committed, is a national asset and a cornerstone of the global financial system," Paulson said in his letter. "In light of current developments in financial markets, which would be exacerbated by uncertainty in the Treasuries market, I urge the Senate to pass the legislation reported by the Finance Committee to increase the debt limit as soon as possible."
The Senate Finance Committee earlier this month approved increasing the limit on the national debt to $9.82 trillion. That boost of $850 billion would be the fifth increase in the government's borrowing limit since President Bush took office in 2001.
The national debt is the total accumulation of annual budget deficits, which must be financed with borrowed money.
Democrats blame Bush's tax cuts and the war in Iraq for pushing the debt to record levels. Republicans defend the tax cuts, saying the deficit is now on a downward trajectory in part because of the economic stimulus provided by the tax cuts.
The House approved an increase in the debt limit in May when it adopted the annual congressional budget resolution, but the full Senate has yet to act to raise the limit.