The Obama administration will ask Congress to increase federal borrowing authority by $1.2 trillion as the nation approaches the debt limit set by law, according to a Treasury Department official.
The White House will send the request to Congress on Dec. 30, the day the debt is projected to rise to within $100 billion of the $15.194 trillion limit, the Treasury official told reporters today on condition of anonymity.
Congress will be notified under the terms of a deal to raise the limit worked out on Aug. 2 after a more than two-month standoff between the administration and Republican lawmakers that was followed by a cut in the U.S. debt rating by Standard & Poor’s. The Budget Control Act of 2011 gives Congress 15 days to pass a joint resolution disapproving the increase in the limit. The president can veto such a measure.
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“This process was intended to avoid any further political wrangling” and “make it virtually impossible to derail the final $1.2 trillion,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.
The limit has already been raised twice since the act was approved, by a total of $900 billion. It would rise to $16.394 trillion after the latest increase.
The Treasury official said U.S. government debt won’t hit the limit again until late next year. Even if it is reached before the November election, the Treasury would be able to use extraordinary measures, such as suspending the issuance of some securities used to finance state and local government infrastructure projects, to extend borrowing authority.
Under the Budget Control law, the debt limit will be increased on Jan. 14, 2012, unless Congress acts. The Treasury will need to deploy some extraordinary measures to keep the debt within the limit before then, the official said.
In a note to clients last week, Crandall said there’s “no chance” Congress would vote to override a presidential veto of a resolution to reject an increase in the debt limit. He also said it’s unlikely Congress would have to vote on another increase in the debt limit before November.
Borrowing increases toward the end of the year because the government must make $82 billion in semiannual interest payments, such as on the Social Security trust fund, the Treasury official said.
Obama may have little difficulty financing a fourth consecutive year of $1 trillion budget deficits after the U.S. government received record demand for its bonds in 2011, pushing longer-maturity Treasuries to their best performance since 1995.
The Treasury attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold, the most since the government began releasing the data in 1992 during the George H. W. Bush administration.
Demand for Treasurys surged after S&P cut the nation’s AAA rating by one step on Aug. 5 as investors sought the safety of U.S. assets amid the European crisis and slowing global growth.
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