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Treasury Says U.S. Could Face Default

1 hour, 33 minutes ago Add White House - AP Cabinet & State to My Yahoo!


By JEANNINE AVERSA, Associated Press Writer

WASHINGTON - The Treasury Department (news - web sites) says the United States could face the prospect of not being able to pay its bills in late May unless Congress raises the government's borrowing authority, now capped at $6.4 trillion.



Treasury's debt managers have taken a number of steps since February to prevent the government from defaulting on the national debt, but "on current projections, the extraordinary measures taken since Feb. 20, 2003, will only be adequate to meet the government's needs until the latter half of May," said a statement released Tuesday.


After that — absent a boost in the government's borrowing authority by Congress — Treasury would breach the current $6.4 trillion ceiling on the national debt.


"The Treasury will continue to work with Congress to ensure the government's ability to finance its operations," Treasury said.


Treasury has asked Congress to boost the government's borrowing authority, although it has not suggested a specific amount. A proposal is pending on Capitol Hill that would raise the debt ceiling to $7.38 trillion.


Last year, Congress boosted the old debt limit by $450 billion, from $5.95 trillion to the current $6.4 trillion.


At that time Treasury warned that Congress would need to again increase the government's borrowing authority.


Boosting the debt limit is more a matter of politics than economics.


Economists doubt Congress will refuse to raise the limit. A federal default is considered unimaginable because it would rattle bond markets, force interest rates higher, weaken the world economy and deliver a political blow to President Bush (news - web sites).


Democrats point to the government's need to borrow more to ridicule President Bush's tax cuts, his handling of the economy and ballooning federal government budget deficits, which are expected to hit records this year and next.


Republicans blame the lingering effects of the 2001 recession and the costs of fighting terrorism for the need to extend the debt limit.


By Memorial Day, Republicans hope to have pushed through Congress a tax-cut bill with a price tag of between $350 billion and $550 billion through 2013.


If Congress must approve a debt-limit extension during the same period of time, it could play into Democrats' political argument that the new tax cut will only make the government's red ink worse.


The government had to borrow a record $111 billion in the January-March quarter to cover the shortfall between expenses and tax revenue. It expects to borrow another $79 billion in the current quarter.

http://story.news.yahoo.com/news?tmpl=story&u=/ap/20030429/ap_on_go_ca_st_pe/debt_limit_3