Treasury's Lew: US Will Exhaust Borrowing Capacity Mid-October

The Obama administration warned Congress on Monday that the United States could run out of money to pay its bills soon after mid-October if lawmakers do not move swiftly to raise a limit on government borrowing.

"Congress should act as soon as possible to protect America's good credit," Treasury Secretary Jack Lew said in a letter to congressional leaders, urging action "well before any risk of default becomes imminent."

The government has been scraping up against its $16.7 trillion debt limit since May, but has avoid defaulting on any of its obligations by employing a number of emergency measures to manage its cash, like suspending investments in pension funds for federal workers.

Lew said the government will exhaust its borrowing capacity in the middle of October and be left with about $50 billion in cash on hand, an amount that he said could conceivably be wiped out in a single day. That would make default imminent and could shake investors' confidence in the United States, he said.

"Such a scenario could undermine financial markets and result in significant disruptions to our economy," Lew added.

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 a Wall Street rating agency 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.

"The debt limit remains a reminder that, under President Obama, Washington has failed to deal seriously with America's debt and deficit," said Michael Steel, a spokesman for House Speaker John Boehner.

While Congress has already taken the tax and spending decisions that have fueled U.S. budget deficits, it also separately controls the limit on the nation's debt.

Obama is vowing not to let the debt ceiling be a bargaining chip in other political discussions.

"We will not negotiate with Republicans in Congress over Congress' responsibility to pay the bills that Congress has racked up, period," said White House spokesman Jay Carney.

Previously, the Obama administration had said Congress needed to act by early September, but a strengthening economy has boosted tax receipts, buying the government more time before it runs out of borrowing room.

The non-partisan Congressional Budget Office has said the government might not exhaust its borrowing capacity until November, an estimate in line with private sector forecasts.

(Reporting by Jason Lange; Editing by Leslie Adler)