US could default on debt

["D OC" <donaloc@xxxxxxxxxxxxxx>]

I can hardly believe I am reading this from the bbc on the 24th June. I see
the Euro is just below parity with the dollar 0.9944 - if it goes over
parity, I reckon the US economy will take another shudder. If the US
defaults on debt, the world will shudder.

Interesting is Bushes' quote about reducing governmental spending and the
use of social security retirement funds to finance the war on terror.

D.

>The growing US budget deficit is rapidly turning into a game of
brinkmanship for the Bush administration.

If they don't act we're going to hit the wall probably by next weekend -US
Treasury Secretary Paul O'Neill

The US government will officially run out of money at the weekend unless the
US House of Representatives approves an increase in the national debt
ceiling this week.

The government wants the authority to borrow an additional $450bn (£300bn;
464bn euros) above the existing level of debt of $5.95 trillion.

"If they don't act we're going to hit the wall probably by next weekend,
because on Sunday we've got to certify social security payments and we have
some other large payments," said US Treasury Secretary Paul O'Neill.

The US Senate has already approved the increase, but the measure is
deadlocked in the House of Representatives, where conservative Republicans
are refusing to back an increase to the government's debt.

As a result, the government has had to cancel its regular sale of Treasury
bills this week, the normal way it raises money in the financial markets.

Spending boost

At the root of the problem is the huge increase in the US budget deficit,
which has soared because of the cost of the war on terrorism, as well as the
reduced revenues caused by tax cuts and a slowing economy.

Military spending has soared

Last month the US government recorded an $80bn deficit, with tax receipts of
only $103bn compared to spending of $183bn.
Just one year ago, Congress was debating how to spend a projected budget
surplus of several trillion dollars over the next 10 years.

Now, the Congressional Budget Office has forecast a budget deficit of $150bn
this year and $171bn next year - and those forecasts are likely to be
revised upwards in July.

As a result, the government will be forced to use its surplus on its social
security retirement funds to balance the budget.

Political deadlock

But House Republicans - who are facing criticism from Democrats in an
election year for giving too much away in tax cuts for the rich - would like
to attach any increase in the debt ceiling to a supplemental spending bill.

"What we've done with tax cuts is help this economy. We're going to get back
to balanced budgets," said House speaker, Dennis Hastert.

The stand-off between House Republicans and the White House is part of
pattern of weak economic policy leadership from the Bush Administration.

After passing a huge $1.3 trillion tax cut last year, other government
initiatives - such as reform of social security, increases in energy
production, and the pursuit of free trade - have become mired in political
controversy.

But if Congress allows a government default, it could damage financial
markets, and lead to a further fall in the value of the dollar, which has
already reached a two-year low against the euro.

full (including a nice table on US defence spending):
http://news.bbc.co.uk/hi/english/business/newsid_2062000/2062429.stm



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