National Debt Limit Countdown
by Guest Blogger, 8/9/2004
On August 2, Treasury Secretary John Snow urged Congress to raise the federal debt limit without delay, and warned that the limit will be reached by late September or early October.
Others have speculated that gimmicks can be used to keep from reaching the limit until mid- or late November. One way that has been used in the past is not making scheduled payments into the Federal Employee Retirement System pension fund and after the ceiling is raised, repaying the "borrowed" amounts (with interest). This would allow action on the debt limit to be postponed until after the election.
Following is a brief Q & A about the debt limit.
What is the debt limit?
The debt limit or ceiling is the legal amount -- set by statute -- up to which the government can go into debt. Currently it is set at $7.384 trillion. Increasing debt over this limit is illegal.
What causes the national debt to grow?
Every time the government runs a annual deficit, meaning revenue is not sufficient to cover spending, it must borrow money, which increases the national debt. Record deficits have become the norm under this administration, because of a combination of factors: the economic downturn following 9/11, the war on terrorism, the Iraq war, and, perhaps most significant, the huge tax cuts in 2001 and 2003 that dramatically reduced revenue. The Office of Management and Budget recently estimated the deficit for fiscal year 2004 at $445 billion, adding $445 billion more to the national debt.
What happens if the debt limit is surpassed?
It is considered unthinkable that the U.S. Government would default on its debt. The catastrophic results would include chaotic bond markets and soaring interest rates. Thus, the debt ceiling will be raised. The only question is when, since raising the debt limit is a political hornet's nest, especially in an election year.
When was the last time the debt ceiling was raised?
It was last raised in May 2003 by a record $984 billion. Since Bush entered office in January 2001, the debt limit has been increased by more than $1.4 trillion.
For more about the national debt, see the U.S. Treasury's Q & A.
The International Monetary Fund released its annual report on the economic and fiscal condition of the U.S. It found that the administration's goal of cutting the deficit in half by 2009 was not ambitious enough, especially given the increasing pressure an aging population will soon be making on Social Security and Medicare. Rather, the IMF recommended getting the budget in balance by 2009 (without counting the Social Security surpluses). This would require "revenue enhancements," or tax increases.
If you want to watch the debt grow by the minute, see the National Debt Clock.