Debt ceiling to be hit by May 16

NEW YORK (CNNMoney) -- Treasury Secretary Timothy Geithner told congressional leaders Monday that he now expects U.S. debt to hit the country's $14.294 trillion debt ceiling "no later than May 16."

"Although these projections could change, we do not believe they are likely to change in a way that would give Congress more time in which to act," Geithner said in a letter.

Earlier, Treasury had estimated that the limit would be reached between April 15 and May 31.

If the debt limit is not increased by May 16, the Treasury would employ a range of extraordinary measures to prevent the United States from defaulting on its obligations.

But Geithner estimated that those measures could only buy roughly eight weeks -- "meaning no headroom to borrow within the limit would be available after about July 8, 2011." (Time to get real on the debt ceiling)

As of March 31, the debt subject to the legal borrowing limit was $14.218 trillion, or roughly $76 billion under the legal cap. Typically, that's a little over two weeks of borrowing, although debt levels can fluctuate up or down on a daily basis.

Geithner also explained why some measures suggested to Treasury as a way of buying time are not realistic. For instance, Treasury has been asked whether it could have a "fire sale" of financial assets such as gold or the government's portfolio of student loans.

"To attempt a 'fire sale' of financial assets in an effort to buy time for Congress to act would be damaging to financial markets and the economy and would undermine confidence in the United States," he said.

The debt ceiling has never been reached. But if U.S. borrowing hits the ceiling and lawmakers fail to raise it, Treasury would be prohibited from borrowing more money.

"If Congress failed to increase the debt limit, a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds," Geithner wrote.

The Congressional Research Service estimates that the government will need to borrow $738 billion between now and the end of this fiscal year. So unless lawmakers choose to raise the ceiling, they will need to come up with that amount of money either through spending cuts, tax increases or some combination of the two if the country is going to continue to pay its bills in full.

If they don't, the United States may have to default on at least some of its debt, which is an unthinkable option since it could cripple world markets and slam the U.S. economy.

Some lawmakers nevertheless are threatening to vote against an increase in the debt ceiling supposedly in the name of fiscal responsibility.

But, in fact, lawmakers will have no choice but to raise the ceiling eventually because even if Congress never approves another spending increase or tax cut, the country will not have enough revenue coming in to cover all the bills it will have coming due.