BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Monday, 24 June, 2002, 12:07 GMT 13:07 UK
US could default on debt
US Budget document
The US war budget has proved costly
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.

See also:

20 Mar 02 | Business
09 May 02 | Business
24 Jan 02 | Americas
04 Feb 02 | Business
23 Jan 02 | Business
26 May 01 | Americas
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes