Congress Approves Record Debt Limit
Fri May 23, 3:05 PM ET
By ALAN FRAM, Associated Press Writer
WASHINGTON - The Republican-led Congress passed legislation Friday allowing government debt to grow by a record $984 billion, brushing past Democrats' attempts to spotlight the federal IOUs that have resumed piling up under President Bush.
The Senate gave the bill final congressional approval by 53-44, only hours after lawmakers had passed $330 billion in new tax cuts through 2013, a major priority for Bush and Republicans on Capitol Hill. D emocrats want to link that and other tax cuts Bush has won to the government's mounting debt. But GOP senators were united in an effort to get the measure to the White House â and out of the political limelight â quickly.
Looking to intensify pressure on lawmakers to approve the bill without amendments, Republican leaders did not bring the measure to the Senate floor until the House had left town for a weeklong Memorial Day recess. The House had avoided a direct vote on the debt limit by reviving a rule that made its approval of a borrowing increase automatic when Congress finished its annual budget last month.
"The House is no longer there," said Sen. Craig Thomas, R-Wyo. "The fact is we need to go forward."
With the outcome not in doubt, the debate was a political exercise. Democrats argued that federal interest payments on the mounting debt are draining the budget of money needed for basic federal programs.
"That is a debt tax that every taxpayer has to pay, it is a debt tax that robs this generation and future generations of the ability to make our own fiscal choices," said Sen. Max Baucus, D-Mont.
After running annual surpluses during the last four years of the Clinton administration, federal deficits have returned. This year's is expected to well exceed $300 billion, a record, and huge future shortfalls are expected with no end in sight.
Bush's certain signature would boost the government's debt limit to $7.38 trillion, enough to let it borrow money until sometime next year.
The Treasury Department had warned it needed the extension by next week "to preserve the confidence in the U.S. government and to prevent uncertainty that would adversely affect our economic recovery." The current $6.4 trillion limit was breached earlier this year, and Treasury paid its bills by shifting money from government retirement and other funds, maneuvers it said it could not make again.
Failure to extend the borrowing limit could lead to a first-ever federal default â something neither party wants to be blamed for.
The bill is H.J. Res. 51.
http://www.washingtonpost.com/wp-dyn/articles/A31522-2003May23.html?nav=hptoc_p
But now it's getting more interesting.
The $44 trillion hole
Recent study says Social Security, Medicare shortfalls could be far bigger than previously thought.
May 29, 2003: 1:33 PM EDT
By Mark Gongloff, CNN/Money Staff Writer
NEW YORK (CNN/Money) - Many economists worry that the U.S. federal budget deficit could approach a record $500 billion this year.
Few, however, have grasped that the fiscal problems facing the United States could make an itty bitty $500 billion deficit look like pocket change.
Try $44.2 trillion on for size.
That's the total "fiscal imbalance" figure Jagadeesh Gokhale, an economist with the Cleveland Federal Reserve and the American Enterprise Institute (AEI), and Kent Smetters, an economist at the Wharton School of the University of Pennsylvania, calculated in a recent, unpublished study about new methods of federal budget accounting
What the number represents is the difference between all the government's future obligations -- mostly Medicare and Social Security benefits, which will explode when Baby Boomers start retiring in large numbers -- and all the government's future revenue.
The point of the study, which will probably be published by the AEI in July, was to note that current methods of crunching the numbers, which don't look beyond the next 75 years, understate the amount of money the government will have to pay in the future. The standard 75-year method, they say, shows a mere $16.3 trillion shortfall.
The policy implications of the study are staggering -- they could result in drastic tax increases, cuts in federal spending and benefits, or both.
"The problem is pretty urgent, and we don't have any time to start dealing with these problems," Gokhale told CNN/Money. "If we do nothing today, the cost of postponing action grows over time."
If the problems aren't corrected, the study shows, the already huge projected shortfall could grow to $54 trillion by 2008.
Gokhale said fixing the massive shortfall, assuming the government chooses not to cut Social Security and Medicare benefits, will soon force the government to pick from a "menu of pain," in the words of economists Laurence Kotlikoff and Jeffrey Sachs, who in a recent opinion piece in the Boston Globe first reported the findings of the Gokhale-Smetters study.
The options:
boost individual and corporate taxes 69 percent
raise payroll taxes 95 percent
cut non-Social Security and non-Medicare spending 56 percent
eliminate all other federal government spending
some combination of each of these four measures
These are ugly scenarios that haven't gotten wide public discussion. The Financial Times reported Thursday that the study was commissioned by Paul O'Neill when he was treasury secretary, and Smetters told the Financial Times that White House advisers Lawrence Lindsey and Mitch Daniels read and were "very engaged" with the study.
The Financial Times report implies the study's findings were meant to be included in President Bush's 2004 budget proposal but were dropped at the last minute. Smetters told the paper the study results were only omitted from the budget because O'Neill, Lindsey and Daniels all left the White House and Bush's new advisers hadn't had a chance to fully analyze the study's findings.
The Treasury Department, for its part, denies having anything to do with the study. Gokhale said it was meant only to be a "talk piece" and that he never talked to O'Neill. Smetters could not be reached for comment.
But the Social Security Administration has started using the Gokhale-Smetters accounting method to project future deficits, and Gokhale is hopeful the rest of the government will soon follow suit.
"We need these measures because we need to be able to evaluate the trade-offs involved and the alternative methods of solving the problem," Gokhale said. "To do that, we have to take the full fiscal imbalance into account."
http://money.cnn.com/2003/05/29/news/economy/social_security_pain/index.htm
The economy needs to pick up fast or something has to give. It seems that more dollar devaluation, negative interest rates and precious metal speculation could be in the horizon.
Josh
