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U.S. Likely To Hit Debt Ceiling Sooner Than Believed

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The country's next fiscal crisis will come sooner than advertised.

Treasury Secretary Jack Lew on Wednesday sent a letter to House Speaker John Boehner (R-Ohio) warning that the country would likely exhaust the extraordinary measures used to stay beneath the debt limit by late February. In a previous letter to Boehner, Lew had projected the deadline might not be hit until early March.

"While this [new] forecast is subject to inherent variability, we do not foresee any reasonable scenario in which the extraordinary measures would last for an extended period of time," Lew wrote.

In the deal reached in mid-October to end the government shutdown, lawmakers extended the nation's debt limit into the first week of February. It was always understood that Treasury could take extraordinary measures to extend the deadline even further. But in his note to Boehner, Lew made clear that those tools weren't as potent as they have been in previous debt limit crises, partly because of limits on borrowing capacity and partly because of financial constraints that are unique to the month of February.

"The length of time that the extraordinary measures can extend the nation's borrowing authority is significantly shorter than it was in 2011 and 2013," Lew wrote. "This is in large part because the government experiences large net cash outflows in the month of February, due to tax refunds. For example, in 2013, the government experienced net cash outflows of approximately $230 billion in the month of February, as compared to average net outflows of $45 billion in the other months of the year. Moreover, this year the payment of tax refunds will be particularly concentrated in the weeks after February 7 due to the delayed start of the tax filing season, which was caused by the government shutdown."

The tightened deadline creates a dilemma for Boehner. House GOP leaders have stated that they won't simply vote to extend the debt limit without receiving something in return, but it's unclear exactly what they hope to get. In the past, Boehner and House Majority Leader Eric Cantor (R-Va.) have called for spending cuts equal to the amount of the debt ceiling increase. They've also pushed for policy riders, such as one authorizing the construction of the Keystone XL pipeline.

The White House, meanwhile, has steadfastly refused to negotiate over raising the debt limit. It emerged confident in its intransigence after Republicans folded before the last debt ceiling deadline in late October.

The showdown between the two parties is now set to take place in an accelerated timeframe, and right as primary season is heating up in many congressional districts -- a factor that could encourage sitting Republican lawmakers to vote against a deal.

"Protecting the full faith and credit of the United States is the responsibility of Congress, because only Congress can extend the nation's borrowing authority," Lew wrote. "No Congress in our history has failed to meet that responsibility. I respectfully urge Congress to provide certainty and stability to the economy and financial markets by acting to raise the debt limit before February 7, 2014, and certainly before late February."

UPDATE: 4:45 p.m. -- Boehner spokesman Michael Steel responded to the Lew letter with a statement that reaffirms the fault lines of the upcoming debt ceiling standoff.

"The Speaker has said that we should not default on our debt, or even get close to it, but a 'clean' debt limit increase simply won't pass in the House," Steel said. "We hope and expect the White House will work with us on a timely, fiscally-responsible solution."

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