Treasury: Debt limit to be hit this year

The U.S. government will reach its $16.4 trillion debt limit at the end of the year, according to latest estimates from the Treasury Department.

Congress will likely have until early 2013 to actually craft a deal to hike the limit before the government exhausts its ability to borrow. The Treasury said it can employ "extraordinary measures" that would free up cash and keep the government funded for a few more months. The nation's debt currently stands at $16.199 trillion.

"We continue to expect that these extraordinary measures would provide sufficient 'headroom' under the debt limit to allow the government to continue to meet its obligations until early in 2013," said Matthew Rutherford, the Treasury's assistant secretary for financial markets.

The Treasury previously estimated in August it would reach the limit at the end of the year and would require an increase in early 2013.

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The timeline sets the stage for what could be another bruising battle of the U.S. Congress. The last time the government approached the limit, the two parties took the fight over raising it to the brink, hiking it hours before the government would have defaulted. The standoff led to turmoil in financial markets, and the first-ever downgrade of the nation's credit rating.

Last year, the government reached the debt limit in May, but Treasury was able to buy time via its "extraordinary measures" until Aug. 2. The agency began a "debt issuance suspension period" when it first reached the limit, and freed up cash to meet government obligations elsewhere. Treasury halted the issuance of special securities for state and local governments, for example, and stopped some investments in federal employee retirement funds.

The debt limit is not the only large budgetary battle looming on the horizon. Congress is also expected to spend the lame-duck session after the election addressing the "fiscal cliff," the combination of expiring tax cuts and automatic spending cuts set to take effect at the beginning of the year. Economic experts have warned that allowing all those policies to take effect at once could push the economy into a recession.

This post updated at 11:27 am.