Treasury says US has reached $16.4 trillion borrowing limit

By Peter Schroeder - 12/31/12 06:38 PM ET

The U.S. government reached its $16.4 trillion borrowing limit on Monday, according to the Treasury Department.

Treasury Secretary Timothy Geithner informed congressional leaders in a letter Monday that the government has begun employing "extraordinary measures" to avoid default as it bumps up against the borrowing cap.

Geithner said his agency is beginning a "debt issuance suspension period."

Geithner said in the letter that the government has suspended investments in a pair of government retirement funds, a move commonly employed by the Treasury when it bumps up against its borrowing cap. Federal retirees and employees will be made whole after the limit is raised.

Geithner warned Congress on Dec. 26 that the government was on track to hit its borrowing cap on New Year's Eve. In his letter, he said that the $200 billion in extraordinary measures the government has on hand would normally buy two months for lawmakers to haggle over hiking the debt limit.

But given the significant uncertainty surrounding the nation's finances brought on by the ongoing fight over the "fiscal cliff," Geithner has no idea exactly how long Congress will have before the government defaults.

"Given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures," Geithner wrote.

With no fiscal cliff deal in place, Geithner offered no update in his latest letter on how long Congress would have before the limit would have to be increased.

Going over the cliff and allowing automatic tax hikes and spending cuts to take effect would actually give policymakers more time to debate the debt limit, as the increased revenue and slimmed-down spending would reduce the need for the government to borrow funds.

However, the combined economic pinch brought on by the cliff is expected by most economic experts to push the U.S. into a recession if allowed to take effect.

Republicans are already gearing up to demand major spending cuts and entitlement reform as part of any agreement to raise the debt limit.