US debt, spending put Trump, Congress under the gun

(MENAFN- AFP) Looming deadlines to pass a budget and raise limits on US sovereign debt have left President Donald Trump's administration and a divided Congress scrambling to ward off fiscal disaster.

In the coming weeks, lawmakers must both settle on a budget for 2018 and authorize the federal government to continue borrowing in order to meet its immediate financial obligations -- failing which the United States risks defaulting on its debt for the first time in history.

- What is the 'debt ceiling' -

The so-called debt ceiling is the legal cap on borrowing by the federal government, which has been raised 78 times since 1960, in most cases without incident.

But it has sometimes sparked fierce battles over spending. Raising the debt ceiling means allowing total US debt to continue growing. Some at the most conservative end of the American political spectrum have crusaded for freezing US debt and enacting strict fiscal austerity.

The United States habitually finances a budget deficit by borrowing from investors.

And if the current $19.9 trillion debt ceiling is not raised, Washington may default on outstanding debts already authorized by Congress -- something some economists have warned could lead to a global recession, with interest rates spiking and the stock market crashing.

The federal government hit the debt ceiling in March and since then the Treasury has resorted to "extraordinary measures," deferring certain investments and payments, to avert a default.

But the Treasury has told lawmakers it will run out of rope by September 29. The non-partisan Congressional Budget Office puts the drop-dead date in mid-October.

- We've been here before -

In 2011 and again in 2013, the financial world shuddered as the United States skated dangerously close to a default during battles over raising the debt ceiling.

The ratings agency Standard & Poor's in 2011 knocked US sovereign debt down a notch from its top grade to AA+, citing the debt ceiling battles.

Under pressure in 2013, the administration of then-president Barack Obama cut a deal with Republican lawmakers who had retaken the legislative majority in 2010.

Trump, who at the time was not in political office, lashed out at Republicans on Twitter.

"I cannot believe the Republicans are extending the debt ceiling -- I am a Republican & I am embarrassed," he said at the time.

Now, he is in the White House, with his own party in control of both chambers of Congress.

- But this time is different -

Talks on the debt ceiling have collided with the perennially fraught matter of federal spending, which has to be addressed before the start of a new fiscal year on October 1 -- failing which the government may have to shut down.

Opposition Democrats are refusing to allow funding for a wall along the Mexican border -- a key campaign pledge Trump made as part of a hard-right immigration agenda.

Some administration members, including White House Office of Management and Budget Director Mick Mulvaney, wish to tie the debt ceiling to spending cuts.

But the White House and Treasury Secretary Steven Mnuchin are insisting on a "clean" debt ceiling increase, that is, without changes to spending policy as a condition, "as soon as possible."

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