U.S. Warns of Default Unless Debt Is Raised

A top Treasury official warned Congress today of major financial disruptions beginning May 16 and an unprecedented government default on May 28--costing the nation hundreds of billions of dollars--unless Congress acts to increase the national debt.

George D. Gould, under secretary of the Treasury, said when the current debt ceiling of $2.3 trillion expires at midnight May 15, the government will be forced to stop issuing savings bonds and all other securities.

Congress has often crowded deadlines for increasing the statutory ceiling on the national debt, and some minor disruptions in markets have occurred.

More Vital This Year

However, the May 15 expiration is more important this year because the debt limit would actually decrease from its current $2.3 trillion to $2.111 trillion. As a result, the Treasury could not even re-issue current debt since its borrowings are already well above the lower level.

On May 28, the Treasury has major obligations due and won’t be able to pay them unless Congress allows new government debt.

“The consequences of not having a debt ceiling increase on that date would be incomprehensible,” Gould said. The long-term costs of the first U.S. government default “could run into the hundreds of billions of dollars” because of higher interest rates and other problems it would cause, he said.

Because they are “must-pass” bills, debt increases have become popular, especially in the Senate, as vehicles for all sorts of amendments.