United States President Barack Obama has formally notified Congress that that the US government needs another US$1.2 trillion in borrowing authority. While the debt limit will almost certainly be raised even if Congress votes against it, the move has prompted renewed election-year complaints from Republicans that the US deficit is out of control.
An Auto-Pilot Increase
In a one-sentence letter to House of Representatives Speaker John Boehner, the top Republican in Congress, Mr Obama said "further borrowing is required to meet existing commitments".
Congress now has 15 days to vote on a resolution of disapproval under terms of budget control legislation passed last year. If Congress does not vote against the move, the debt ceiling will automatically adjust up by an additional US$1.2 trillion.
The increase would push the US debt ceiling to US$16.394 trillion.
Lawmakers are unlikely to muster the votes needed to block the boost in borrowing capacity, so a replay of last year's debt drama which cost the US its top-tier credit rating is not expected.
Under procedures resulting from last August's budget agreement, President Obama now has the power to issue a veto, and the debt ceiling would rise even if Congress tries to block it.
The House of Representatives is scheduled to hold its vote on the issue next Wednesday, 18 January.
If the expected increase goes through, the US government likely will not need to raise the debt ceiling again until late 2012 or early 2013.
Report: Obama seeks $1.2 trillion debt limit rise [Reuters, 12 Jan 2011]
US law requires the President to notify Congress of a debt-limit increase when the country's debt comes within US$100 billion of the current US$15.194 trillion limit.
The threshold was actually reached on December 30, and Mr Obama originally intended to exercise his authority to raise the debt limit at that time. But leaders of the House and Senate asked Mr Obama to delay the notification until lawmakers returned to Washington after the holiday break.
The delay meant that in order to pay its bills, the US has had to dip into its Exchange Stabilization Fund, a pot of money normally used by the US Treasury to maintain currency stability. A US Treasury official said other measures, such as suspending the daily reinvestments of assets in a government pension fund, may also be needed until the debt-limit increase is secured.
Report: Obama requests another $1.2 trillion to pay US costs [BBC, 12 Jan 2011]
Why the Debt?
The US Congress keeps increasing the debt ceiling because the government spends more money than it brings in through tax receipts. The US government ran a US$1.3 trillion deficit in each of the past two fiscal years.
The practical implications of failing to raise the debt ceiling are severe. The US can only borrow money up to the limit. Failing to raise the ceiling in the near term would mean the US government would have to make severe cuts in spending to avoid defaulting.
Both the White House and Republicans say a long-term plan is needed to reduce the deficit, but they disagree on how to do it. Republicans want deep spending cuts and overhauls of federal programs such as Medicare, while Democrats have called for a combination of changes, including tax increases and spending cuts, to trim future deficits.
Report: Government Edges Toward the Debt Ceiling [Wall Street Journal, 13 Jan 2011]
The fight over how to reduce future deficits is expected to be a top campaign issue ahead of the November elections.
The current increase notification gives Republicans an opportunity to paint Mr Obama as a spendthrift during an election year. Republicans have blamed Mr Obama for the lack of progress in reducing deficits after congressional deficit reduction talks collapsed late last year.
"This request is another reminder that the President has consistently punted on the tough choices needed to rein in the deficit and protect important programs for American seniors from going bankrupt," said a spokesman for Republican House Speaker John Boehner.
"The President's runaway borrowing threatens the foundation of our economy and the financial future of every hardworking American," said Senator Jeff Sessions, the top Republican on the Senate Budget Committee.
"It brings our nation closer to what the chairs of his own fiscal commission called 'the most predictable economic crisis in its history.'"
Report: Obama Sends Congress Notice to Raise Federal Debt Ceiling [Bloomberg, 12 Jan 2011]