FISCAL COMMENTARY:

Will US Senate Dare to Raise the Debt Ceiling Before the Election?

As of August 31, 2004, the approved debt ceiling stood at $7,384,000,000,000. (See SUMMARY OF TREASURY SECURITIES OUTSTANDING, AUGUST 31, 2004 ). Congress approved an increase to the ceiling of $984,000,000,000 in 2003 - after already approving an increase of $450,000,000,000 in 2002. The "so called Clinton surpluses" were history--they, like the huge "peace dividend surpluses" projected (from defense savings) after the break-up of the former Soviet Union--were aborted shortly after their mythical conceptions via tax cuts and increased spending.

Treasury Secretary Snow has been calling for another debt ceiling increase all summer. A budget resolution passed the House of Representatives by a vote of 216-213 in May of 2004. This resolution proposed hiking the ceiling by another $690 billion to nearly $8.1 trillion on top of the $450 billion increase for fiscal 2003 and the $984 billion increase for fiscal 2004. Federal debt could thus "grow" by 26 percent in two years. It seems the Senate has yet to approve the measure--unless the increase was buried as a rider to another omnibus bill, and "approved incognito." That does not appear the case, and Bush certainly hasn't publicly signed off on it.

No Congress or Presidential Administration ever likes to approve increasing the debt ceiling, because it puts the spotlight on their profligate spending and lack of fiscal control. They certainly don't like doing one in an election year. God forbid they are forced to approve one in the weeks or days before an actual election--especially this election.

Well, guess what's happening? As of September 30, 2004, the US outstanding debt stood at $7,379,052,696,330.32. (See http://www.publicdebt.treas.gov/opd/opdpdodt.htm ). This is broken down into two components: Debt Held by the Public of $4,307,344,596,908.92, which "is all Federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside of the United States Government less Federal Financing Bank securities." And, Intragovernmental Holdings of $ 3,071,708,099,421.40, which is "Government Account Series securities held by Government trust funds, revolving funds, and special funds; and Federal Financing Bank securities."

The second category consists primarily of the cumulative-to-date Social Security surpluses pre-paid by employers/employees that have been co-mingled with other Federal revenues to mitigate the deficits, and it's been spent on everything but Social Security and Medicare benefits. (See "Raiders of the Public Covenant")

If you do the math, you soon learn that there isn't much cushion left between applicable outstanding debt and the debt ceiling. Washington, DC can't keep spending at the current rate and still put off raising the debt ceiling before the elections; that is, unless they get creative with disbursements. You see, Uncle $ugar is effectively on a cash basis. This means they only "recognize" revenue when received, and expenditures when disbursed. There are no receivables and payables at work here. Is there enough "wiggle room" to delay raising the debt ceiling until after the elections by holding off on paying bills? Could/would they do that?

On September 22, 2004, we learned the Pentagon is drawing on a $25 billion emergency fund to cover the rising costs of US military operations in Iraq. When and where was this "departmental kitty" authorized, approved, and funded? What other agency/departments are sitting on similar emergency slush funds? Does this "emergency" drawing on funds have anything to do with our potentially reaching the debt ceiling before the elections? Just curious!

US Congressman Ron Paul, MD (R.-14th District, Texas) writes: "The term 'national debt' really is a misnomer. It's not the nation's debt, but rather the Federal Government's debt. The American people didn't spend the money, but they will have to pay it back."

Well put, Congressman.