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U.S. Moves to Halt Default

FILE: The north side of the U.S. Treasury Building in Washington. Taken Feb. 22, 2001.

The US Treasury began taking measures Thursday to prevent a default on government debt, as Congress heads towards a high-stakes clash between Democrats and Republicans over raising the borrowing limit.

"I respectfully urge Congress to act promptly to protect the full faith and credit of the United States," said Treasury Secretary Janet Yellen in a letter to Congressional leadership on Thursday.

Due to the debt limit, the Treasury Department would be unable to fully invest a portion of the Civil Service Retirement and Disability Fund, with a "debt issuance suspension period" to last until early June.

Treasury will also halt additional investments of amounts credited to the Postal Service Retiree Health Benefits Fund, Yellen said.

Such "extraordinary measures" can help reduce the amount of outstanding debt subject to the limit, currently set at $31.4 trillion, but the Treasury has warned that the tools would only help for a limited time -- likely not longer than six months.

If Republican lawmakers in Congress refused to raise the debt limit and created a situation of actual or threatened default, the world's biggest economy could face severe disruption.

Analysts say not only would default notably raise interest rates on U.S. government borrowing, adding to the deficit, but also, the action would ripple through Wall Street and other financial markets with negative effects.