The United States on Monday hit the debt ceiling of $14.29 trillion, forcing the Treasury to take strong and emergency measures to prevent the country from defaulting on its debt.
The $14.29 trillion borrowing limit underscores the need for Congress to put in place a fiscal straitjacket like the CAP Act.
In a letter to Congressional leaders, US Treasury Secretary Timothy Geithner warned of "catastrophic economic consequences" if the ceiling is not hiked.
Earlier, Geithner tapped into two government employee pension funds to free cash of $12 billion for about two months by halting new investments in the Civil Service Retirement and Disability Fund and redeeming existing investments in that fund.
US Vice-President Joe Biden is continuing with his talks with Congressional leaders to raise the debt ceiling.
"Failure to raise the debt limit would force the United States to default on these obligations, such as payments to our service members, citizens, investors, and businesses," Geithner said in a letter to Congressional leaders urging them to raise the debt limit.
"This
would be an unprecedented event in American history. A default would inflict catastrophic, far-reaching damage on our nation's economy, significantly reducing growth, and increasing unemployment," he said.
"A default would call into question, for the first time, the full faith and credit of the US government. As a result, investors in the United States and around the world would be less likely to lend us money in the future.
"And those investors who still choose to purchase Treasury securities would demand much higher interest rates, reflecting the increased risk that we might default on our obligations again," Geithner said.
"If we don't act - if we allow the United States to default - the day of reckoning will be much, much worse than today. Things will be much, much worse for Americans jobs, families and businesses than they already are. And the fallout will be felt around the world," Senate Majority Leader Harry Reid said on the floor of the Senate.
House Democratic Whip Steny H Hoyer said now that the US has reached the debt limit, it is past time for Republicans to get serious and work with Democrats to ensure the nation pays its bills while laying out a path to reduce the deficit.