US reaches $14tn debt limit and cuts investments

Timothy Geithner warns the current impasse can only last until August

The US has reached its debt limit of $14.3 trillion (£8.6tn) and is taking measures to cut spending to avoid breaching it.

Treasury Secretary Timothy Geithner has said that he will suspend investing into two large government pension funds.

This delays any breaching of the limit to 2 August.

Congress is currently negotiating an increase to the limit, without which the US risks defaulting on its debt.

"I have written to Congress on previous occasions regarding the importance of timely action to increase the debt limit in order to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens," Mr Geithner said in a letter to Congress.

"I again urge Congress to act to increase the statutory debt limit as soon as possible."

The full amount of the suspended payments into the two pension funds will be restored if Congress raises the debt ceiling.

Approaching deadline

The US is cutting payments into the funds to allow it to keep borrowing while a deal on a higher debt ceiling is agreed.

The US Congress has set a limit on the total level of national debt since 1917.

The ceiling is periodically renegotiated but has become something of a political football as both Democrats and Republicans try to extract concessions in exchange for increasing the limit.

Mr Geithner had previously set a deadline for a deal on increasing the debt ceiling to 8 July, but said that better tax receipts meant the deadline could be extended to 2 August.

Republicans want to tie any agreement on the US budget to spending cuts, especially in the healthcare programme.

The Obama administration has proposed a $4tn package of budget cuts, but the Republicans say they do not go far enough.

In April, ratings agency Standard & Poor's downgraded its US credit rating outlook from stable to negative, increasing the likelihood that the rating could be cut within the next two years.