U.S. government close to debt ceiling

U.S. Treasury Secretary Timothy Geither Chip Somodevilla/Getty Images

Puts pressure on Congress to raise the limit from its current level of $12.4-trillion

The U.S. Treasury Department said Wednesday it expects to hit the government's debt ceiling by the end of February, putting pressure on Congress to raise the limit from its current level of $12.4-trillion (U.S.).

Treasury said it is working closely with Congress to raise the ceiling. The Senate has approved legislation to increase it by $1.9-trillion to $14.3-trillion. A ceiling that high would equal about $45,000 for every American. The House is expected to vote on the increase Thursday.

Congress approved a smaller increase of $290-billion in late December, allowing the government to borrow for about two more months.

Matthew Rutherford, Deputy Assistant Secretary for Federal Finance, said a $1.9-trillion rise would enable the government to continue borrowing into 2011.

The Treasury's announcement comes after the Obama administration on Monday released a budget that projects this year's deficit will reach $1.56-trillion, an all-time high. That's equivalent to 10.6 per cent of the economy, the highest proportion since World War II.

The deficit is projected to decline to $1.27-trillion in the 2011 budget year and $828-billion in 2012.

Despite the record deficits, Mr. Rutherford said the department's financing needs will likely decline this year. Treasury will no longer increase the size of the debt auctions it uses to fund the gap, he said, after increasing it for two years. The department has anticipated this year's huge deficit and “we're well prepared to handle it,” Mr. Rutherford said.

“Going forward, we expect the fiscal situation is going to improve, and as it does, our financing needs are going to decline,” he said.

The Treasury also announced that it will raise $81-billion in its quarterly refunding operation next week. That ties a record set last quarter for the largest quarterly auction. The department will auction $40-billion of three-year notes on Tuesday, $25-billion in 10-year notes on Wednesday and $16-billion in 30-year bonds on Thursday.

In response to interest from investors, the Treasury said it will also consider issuing more inflation-protected securities, known as TIPS. The value of those securities is designed to match any increases in the consumer price index.

The department might add two additional auctions of 10-year TIPS, a Treasury official said, bringing the number of 10-year auctions to six. Treasury already plans to hold two auctions of five-year TIPS and two of 30-year TIPS.

President Barack Obama's budget proposes to spend $3.8 trillion in the current budget year and borrow 40 cents for every dollar spent. The budget includes additional spending and targeted tax cuts in an effort to spur more hiring and combat the nation's 10 percent unemployment rate.

It also includes about $1-trillion in tax increases and $250-billion in spending cuts in an effort to reduce the deficit over the next 10 years.