The Obama legacy continues.....


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http://www.bloomberg.com/apps/news?pid=20601074&sid=aWXDnpFProiY

U.S. Treasury Confident Congress Will Increase Debt Ceiling

Nov. 13 (Bloomberg) -- The Obama administration is confident Congress
will raise the countryÆs debt limit by year end to avert a showdown
similar to the one that shuttered parts of the government in 1995, administration officials said.

The White House wants an increase of at least $1 trillion to $1.5
trillion, according to a person familiar with the deliberations between lawmakers and the administration. Record budget deficits are pushing the national debt closer to the $12.1 trillion statutory limit.

The administrationÆs request, higher than a proposed increase already
passed in the House of Representatives, would get the government through
the November 2010 midterm congressional elections without needing
another increase. Earlier this month, Treasury officials acknowledged
theyÆll need more borrowing room by year-end to avoid market
disruptions.

ôMarket participants still remain on edge, especially since many have
concerns over the rising debt loads that were kicked off this year,ö
said George Goncalves, chief fixed- income rates strategist in New York
at primary dealer Cantor Fitzgerald LP.

The administration officials said the White House is open to any
legislative vehicle that will raise the debt limit, by any amount.
Although the Obama administration has pledged to bring deficits down to ôsustainableö levels in the longer term, Treasury Secretary Timothy
Geithner has focused recently on the need to keep up spending on
economic assistance programs until the unemployment rate, which reached
a 26-year high of 10.2 percent in October, comes down.

TARP Savings

To rein in the 2010 deficit, the administration will save as much as it
can from unused portions of the $700 billion Troubled Asset Relief
Program, another administration official said. Treasury data show that
the administration has more than $200 billion in uncommitted TARP funds.

One Treasury official said the memory of the 1995 budget standoff should
be motivation to avoid another showdown. In that confrontation, then-
House Speaker Newt Gingrich battled with the White House over federal
budget bills, forcing President Bill Clinton to shut the government down temporarily.

With the economy still in the early recovery stage, Congress understands
the stakes and doesnÆt want to fuel investor concern, the official said.

Republicans in Congress are seeking to link the debt limit to the debate
over health-care spending, while Democrats prefer to keep the two issues separate. The Senate Budget Committee has proposed a commission to look
into the nationÆs fiscal health, which backers say should be a condition
of any debt limit increase.

æNot RightÆ

ôWeÆre seeing deficits projected for the next 10 years of over a
trillion dollars a year,ö said Senator Judd Gregg of New Hampshire, the ranking Republican on the Budget Committee, in congressional comments
last week. ôItÆs not sustainable. ItÆs not fair, and itÆs not right.ö

Treasury debt-management director Karthik Ramanathan told bond market participants in Washington last week to expect another year of
government debt sales of $1.5 trillion to $2 trillion in fiscal year
2010, which began Oct. 1, according to minutes of the meeting.

For fiscal year 2009, which ended Sept. 30, the U.S. racked up a $1.4
trillion deficit, and the Congressional Budget Office in August
predicted a deficit this year of about the same size.

Treasury officials also have said they have less maneuvering room than
in the past. Tactics such as tapping federal retirement funds would free
up roughly $150 billion - about the same amount as the interest payments
that come due on Dec. 31.

Temporary Measures

ôDepending on the date that we hit the debt limit, they could last days
or at most weeks,ö compared with five or six months in previous debt-
limit impasses, said Matthew Rutherford, deputy assistant Treasury
secretary for federal finance, in a press conference last week.

Forecasting a precise date for a debt-ceiling collision is difficult
because the governmentÆs cash flows are ôvolatile,ö the Treasury said
last week, adding that it would keep markets and lawmakers notified of developments. The department said it could need extra immediate cash
because thereÆs so much uncertainty surrounding incoming taxes and
outgoing spending on fiscal stimulus and financial market stabilization programs.

ôDebt ceiling showdowns used to be long, drawn-out affairs,ö said Louis Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey. ôThings come to a head much faster when your cash burn rate averages
more than $100 billion a month.ö

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net

Last Updated: November 13, 2009 00:01 EST

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Barak Obama thinks we can spend our way to prosperity .....

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