WASHINGTON (AP) -- Democrats and Republicans regularly warn
about the dire consequences of legislation they don't like. Often it's
gloom-and-doom partisan hype.
This time,
though, people already are feeling the fallout as twin tempests - the
partial government shutdown and a potential default on the country's
debts - threaten to form a single economic-policy superstorm.
The
shutdown began Oct. 1 because a divided Congress couldn't agree on a
budget. Thousands of federal workers are furloughed, national parks are
closed and many nonessential governmental services are dialed back or
put on hold.
The shutdown doesn't directly threaten Social Security, other mandatory benefits or U.S. interest payments on the national debt.
Breaching the debt limit would.
Unless
Congress raises that limit soon, the government will run out of the
authority to borrow and pay its bills on Thursday, the Treasury
Department says.
A default would challenge the
U.S. dollar's status as the world's "reserve" currency. More than 60
percent of all foreign country reserves are in U.S. dollars, the prime
currency in international trade.
"Without
enough money to pay its bills, any of its payments are at risk -
including all government spending, mandatory payments, interest on our
debts, and payments to U.S. bondholders," the bipartisan Committee for a
Responsible Federal Budget said in a recent report.
A look at what you need to know about the two fiscal matters:
---
The debt ceiling is the legal limit to all federal borrowing, an absolute ceiling on the national debt that cannot be breached.
It can be raised.
Since
Congress first established a limit in 1917, it has been raised roughly
100 times. Raising the statutory limit does not authorize borrowing for
new spending. It only allows the government to keep borrowing to pay
existing bills.
The government borrows money
mostly by selling Treasury bills, notes and other securities, including
U.S. savings bonds. Individuals, mutual funds, corporations and
governments worldwide buy the bonds.
Paying interest on these bonds is one of the government's largest single expenses.
In
the budget year that ended Sept. 30, the government made $396 billion
in interest payments, including payments on bonds held in some
government accounts such as the Social Security Trust Fund.
The
national debt is the accumulation of annual budget deficits. It first
crossed the $1 trillion mark early in the administration of President
Ronald Reagan.
It stood at $10.6 trillion when
President Barack Obama took office in January 2009 and is $16.7
trillion today - bumping up against the debt limit, which is also $16.7
trillion rounded off.
Recently, the Treasury
Department has used complicated accounting maneuvers to keep from
technically exceeding the limit. But it's running out of such tricks.
--
There
are a couple Hail Mary plays the government could try if the deadlock
persists: selling gold from U.S. reserves, selling or leasing government
buildings or national parklands and minting special large-denomination
coins.
The Obama administration has shown little interest in such steps.
One
possibility was suggested in 2011 by former President Bill Clinton and
more recently by House Democratic leader Nancy Pelosi of California:
have Obama raise the ceiling on his own, citing the part of the 14th
Amendment that says "the validity of the public debt of the United
States, authorized by law ... shall not be questioned."
Obama
was asked at a Twitter town hall forum in July whether he would use
that amendment as the basis to raise the debt ceiling. "I don't think we
should get to the constitutional issue," he tweeted. "Congress has a
responsibility to make sure we pay our bills. We've always paid them in
the past."
His spokesman Jay Carney has said
the administration doesn't believe the amendment gives the president the
authority to ignore the debt ceiling.
---
While budget deficits are coming down, the government continues to add to the national debt.
The
deficit represents the annual difference between the government's
spending and the tax revenues it takes in. Each deficit contributes to
the national debt. The last time the government ran an annual surplus
was in 2001.
The annual deficit declined to
roughly $642 billion for the just-ended budget year, the first time in
five years it has dropped below $1 trillion. It was $1.4 trillion when
Obama took office in 2009.
Still, the government must borrow 19 cents for every dollar it spends, pushing up the nation's overall debt level.
One
reason that keeps increasing: the army of retiring baby boomers leaving
the workforce and beginning to collect Medicare and Social Security
benefits.
---
Obama
and Democratic leaders denounce as a form of blackmail GOP efforts to
use the shutdown and debt limit debate to delay or defund Obama's health
care law.
Efforts by opposition parties to
try to put strings on a president's debt-limit increases have been
pretty standard going back at least to President Dwight D. Eisenhower in
the 1950s.
"Congress consistently brings the
government to the edge of default before facing its responsibility. This
brinkmanship threatens the holders of government bonds and those who
rely on Social Security and veterans' benefits," Reagan said in a 1987
radio address. He was scolding the Democratic-controlled Congress for
seeking to modify or defeat his proposal to raise the debt limit.
He raised the debt ceiling 18 times.
As
a senator representing Illinois, Obama voted against President George
W. Bush's 2006 increase in the debt limit, calling it a "leadership
failure" and "sign that the U.S. government can't pay its own bills."
Bush won that battle.
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