Federal Spending Hits Ceiling Forcing Treasury to Act
Last week, federal spending again reached the debt limit put in place by Congress -- the legal amount, above which the federal government cannot borrow. If borrowing exceeds this ceiling, currently set at roughly $7.4 trillion, immediate action is necessary. Treasury Secretary John Snow was recently forced to take action to ensure that normal monetary transactions can continue.
Citing his "commitment to maintaining the full faith and credit of the U.S. Government," Snow sent a letter to Congress Oct. 14 informing members they must increase the debt limit by mid-November, at which point all temporary steps, accounting gimmicks, and borrowing activities the Treasury is capable of will have been exhausted. Officials predict this will happen by Nov. 24, the week Congress reconvenes for its lame duck session.
Meanwhile, Snow has suspended payments into certain government pension funds, including the Government Securities Fund of the Federal Employees Retirement System. Once Congress raises the debt ceiling, all funds affected by this temporary action will be restored.
Since the establishment of the debt ceiling in 1917, the Treasury has had to act, on five separate occasions, to briefly suspend pension funds in order to delay hitting the borrowing limit. Three of those have occurred under President Bush -- in 2002, 2003, and now 2004 -- according to the Washington Post. At the start of this administration, the debt ceiling was $5.95 trillion, and had been last raised in 1997. In May 2003 Congress raised the debt ceiling to its current level, and when they raise it again next month as expected, it will mark the second consecutive year the debt limit has needed to be amended.
The frequency with which Congress has been reaching their spending limit is no coincidence. Excessive tax cuts, which have not been offset, as well as increased spending and general fiscal mismanagement, have led to a deficit situation that is rapidly spinning out of control. As the chart below indicates, such actions by Congress and the administration over the past four years have caused the federal debt as a percentage of GDP to rise again, after it had consistently dropped during the period 1996 to 2000. Clearly new, responsible fiscal management policies are urgently needed to regain control of current record federal deficits and debt before further and deeper damage is done to our economy and future.