Business Times - 14 Apr 2011
US lawmakers preparing for next big fight
By LEON HADAR
THEY have just signed a deal to cut US$38 billion in federal spending for the rest of this fiscal year and averted a government shutdown - for now, at least. Yet even before the ink is dry on that deal - not to mention the fact that Congress still needs to agree on the federal budget for the next fiscal year - lawmakers in Washington are already gearing up for the next fight.
This one is over whether to raise or not to raise the nation's debt ceiling. Simply put, it would allow the government to borrow more money.
Indeed, with the amount of borrowing the federal government is allowed expected to hit the legal limit as early as next month, President Barack Obama and Republican and Democratic congressional leaders are drawing lines in the sand over this next clash. The outcome could have a major impact on the financial markets as well as on the voters who will be choosing the man or woman who will occupy the White House in the next four years.
The federal government is now operating under a law passed by Congress that doesn't allow it to borrow more than US$14.25 trillion. Most analysts agree that in order to prevent the US government from defaulting on its debt, lawmakers will need to lift the debt ceiling by at least US$1 trillion.
If the debt ceiling isn't raised immediately when that debt ceiling is reached - probably in the middle of May - the ensuing initial uncertainty would probably result in mounting interest rates for the government and consumers.
And if Congress drops the legislative nuclear bomb by not raising the debt ceiling, the US government will not be able to pay its debt to financial institutions and will be forced to default, which would have devastating impact on the American - and global - economy.
Down-to-the-wire negotiations over the debt ceiling have been a regular legislative drama on Capitol Hill. In fact, since the debt ceiling was set at US$45 billion in 1939, it has been raised more than 100 times. And when one political party controls the White House, it's a long-established practice for members of the party in opposition to vote against raising the debt ceiling as a way of demonstrating their dissatisfaction with the government spending priorities of the President.
Hence when the debt ceiling had to be raised in March 2006 and the Republican controlled the White House and the Senate, the increase in the debt limit was approved by a narrow vote of 52-48.
And guess who was one of the Democratic Senators who voted against the decision? Democratic Senator Barack Obama of Illinois. 'He now believes it was a mistake,' President Obama's press secretary told reporters last week.
Under President Obama, the debt limit was raised last January and 6o Democratic Senators voted in support of the decision while 39 Republicans voted 'no'.
This year Congressional Republicans - including a large number of members of the Tea Party who were elected in last year's mid-term - are demanding major restrictions on federal spending before agreeing to raise the government's credit limit.
But according to White House spokesman Jay Carney, President Obama expects Congress to approve a 'clean piece of legislation' - approving an increase in the debt ceiling and without conditioning the support for such a measure on new cuts in spending.
But the Republicans disagree.
'The President says: I want you to send me a clean bill,' said the Speaker of the House of Representatives, Republican Speaker John Boehner of Ohio.
'Guess what, Mr President. Not a chance you're going to get a clean bill,' he added.
The White House is arguing that by threatening not to raise the debt limit, the Republicans are 'playing chicken' with the American economy at a time when it is coming out of a long and painful recession. As well, other political and economic challenges, including the upheaval in the Middle East, could threaten the fledging recovery.
Treasury Secretary Timothy Geithner as well as Wall Street bankers with ties to the Republican Party are also warning that a failure by Congress to raise the debt limit by early July could, indeed, destabilise the financial markets and produce another recession.
But Mr Boehner and other Republican leaders say that they could not muster enough support among members of their party in Congress for a stand-alone debt limit bill. And they are demanding that President Obama make it clear - as he is going to do during a speech this week - that he is committed to major cuts in government spending.
Never a dull moment on Capitol Hill.
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