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Raising the Debt Ceiling January 20, 2010

Posted by Rebecca Williams in Analysis.
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Congress is back in session today and one of the issues it must deal with is whether or not to raise the national debt ceiling.  Congress is expected to raise the bar by a reported $1.0 – $1.8 trillion, totaling nearly $14 trillion, as the Treasury Department has estimated that the government will exceed its borrowing limits in February if the debt limit is not raised.

The debt limit has regularly increased over the years as the federal government continues to run annual deficits.   The government is currently borrowing at an annual rate of more than $1 trillion and the FY2010 deficit is projected to be $1.5 trillion.  As the pace of borrowing has quickened, debt limit increases have also become more frequent.  Congress has passed the last four debt limit increases (mostly in response to the financial crisis), in roughly a year and a half (July 2008, October 2008, February 2009, December 2009) increasing the limit the federal government can borrow from $10.615 trillion in July 2008 to the current $12.394 trillion.

Reports, including the most recent analysis by the Peterson-Pew Commission on Budget Reform, warn that without “dramatic” changes US debt will grow to unprecedented levels.  High debt levels could cause a domino effect of decreased value of the dollar and investment rates while at the same time increasing inflation and interest rates.  The Peterson-Pew report lists several recommendations, including the “immediate commitment [by the Congress and the White House] to stabilizing the public debt at 60 percent of GDP by 2018.”

To assuage public concern, the White House and Congress are considering creating a bipartisan commission to address the national debt.  Senate Budget Committee Chairman Sen. Kent Conrad and Sen. Judd Gregg are spearheading the proposed Conrad-Gregg budget committee intending to bring Republicans and Democrats together to make tough decisions about how to cut costs or raise revenue.  It remains unclear, however, what the composition of such a commission would be and who would lead it.

Critics of the proposed budget commission feel that another meeting of the legislative minds is unlikely to solve the deficit problem, as Congressional members are too heavily influenced by the needs of their constituencies.  Critics argue that acting Congressional members are not likely to offset costs by increasing taxes in order to reduce the deficit, especially given the current economic climate and lack of public will to tackle the problem.

If deficit reduction re-emerges as a political priority, there will be national security spending consequences.  On the military side, sizable increases in the defense budget could be more difficult to realize.  The trend of increased forces, expanded military missions, and ballooning defense budgets becomes more unsettling when the deficit is also mounting, especially when it is paid for by borrowing and financed in great part by other nations.

On the international affairs side, the Federal Government’s long-term financial outlook is not good news.  Since the late 1980s, the broad Cold-War political consensus which underpinned U.S. international affairs spending has eroded.  As a result, support for foreign assistance programs and diplomatic activities were secondary to the deficit reduction imperatives of the 1990s.  Should this dynamic resurface, the Obama Administration’s commitment to double foreign development assistance by 2015 would be, at the very least, challenged.

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Comments»

1. Rebecca Williams - January 22, 2010

As of 1/22/2010: Democrats seek a $1.9 trillion debt ceiling…

http://online.wsj.com/article/BT-CO-20100122-709119.html?mod=WSJ_latestheadlines


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