U.S. Treasury Secretary Timothy Geithner said Monday he will halt investments in two big government pension plans immediately to allow the government to continue borrowing money for the next few months.
Geithner informed Congress of his decision in a letter stating that the government had officially reached its $14.3 trillion US borrowing limit.
The debt limit is the amount of money the government can borrow to help finance its operations. The nation has reached its debt limit because the federal government has grown accustomed to borrowing massive amounts of money. The latest estimate is that it borrows 40 cents for every dollar it spends.
Republicans have said they will not vote to raise the borrowing limit until Congress and the White House agree on a plan to reduce the deficit through spending cuts. House Speaker John Boehner last week those cuts should be larger than any increase in the debt ceiling.
The U.S. government would default on its debt if it did not have the resources to pay bondholders the interest or principal payments as they come due.
Government still has 11 weeks
Even though the government has reached its official borrowing limit, Geithner said unexpected revenue and bookkeeping maneuvers will allow the Treasury to continue auctioning debt for another 11 weeks.
Teasury securities are considered the safest investment in the world because the U.S. government has never defaulted.
Treasury officials have said they will be able to continue regular debt auctions until August 2. That's intended to reassure domestic and foreign investors about the availability of Treasury securities.
The money that the two pension funds will lose would be replaced if Congress votes to raise the borrowing limit.
Republicans have held back supporting an increase in the borrowing limit. They first want Congress to agree to more spending cuts.
China further trims holdings
Also Monday, the Treasury Department reported that China, the biggest buyer of U.S. securities, trimmed its holdings for a fifth straight month in April. The Treasury Department said Monday that China cut its holdings by $9.2 billion to $1.14 trillion.
Japan, the second-largest foreign holder, boosted its holdings by $17.6 billion to $907.9 billion. There had been concerns that the March 11 earthquake and tsunami would lead Japan to scale back its purchases so it could use the money for reconstruction.
Britain, the third-largest buyer, increased its holdings by 10 per cent to $325.2 billion in March.
Total foreign holdings increased by $4.9 billion to $4.48 trillion.