U.S. Treasury Secretary Jack Lew warned Congress on Tuesday that waiting until the last minute to raise the nation's limit on borrowing could lead to irrevocable damage to the economy.
"We cannot afford for Congress to gamble with the full faith and credit of the United States of America," Lew told the Economic Club of Washington, a business forum.
The government has been scraping up against its $16.7 trillion debt limit since May but has avoided defaulting on any of its obligations by employing emergency measures to manage its cash, such as suspending investments in pension funds for federal workers.
Lew repeated a warning he made last month that the nation would run dangerously low on cash in mid-October.
As that date approaches, the risk would also rise that investors could lose confidence in the government and might stop reinvesting in U.S. government debt.
"If U.S. bond holders decided that they wanted to be repaid rather than continuing to roll-over their investments, we could unexpectedly dissipate our entire cash balance," Lew said.
Any default on the nation's debts could be calamitous for the world economy. U.S. government debt is the bedrock of the global financial system, and a default would rock Wall Street and likely fuel a sharp increase in interest rates.
A heated debate in Washington over the debt ceiling nearly led to default in 2011. This roiled financial markets at the time and helped prompt credit ratings agency Standard & Poor's to downgrade America's debt rating.
This year, Republicans are considering using the need to raise the debt ceiling as leverage for their agenda in Congress. The party is trying to weaken President Barack Obama's signature healthcare overhaul. Conservatives also want to reform tax laws and get Obama to approve a proposed oil pipeline.
Lew said it would be dangerous for Congress to wait until mid-October before raising the debt limit. That's because it is impossible to know for certain how much money will enter and leave public coffers on any given day.
"Trying to time a debt limit increase to the last minute could be very dangerous," he said.
Lew said prioritizing payments would be "unworkable" if America had to default on its obligations.
"There is no way of knowing the irrevocable damage such an approach would have on our economy and financial markets," he said.