Tuesday, March 07, 2006

US government near to debt limit

US government near to debt limit

US Treasury Secretary John Snow has told Congress to raise the government's credit limit in order to avoid having some of its operations shut down.

The government needs Congressional authority to borrow and the total accumulated debt is now close to its limit of $8.2 trillion (£4.7 trillion).

If the limit is not increased, the government could find it difficult to pay debts or borrow money.

Congress is expected to agree to an extension, averting any debt crisis.

Massive deficits

In a letter to Congress, Mr Snow said he has already taken "prudent and legal actions" to avoid reaching the debt limit.

These include tapping the civil service pension funds and using the $15bn in the Exchange Stabilisation Fund, a reserve held for smoothing out volatile movements in the value of the dollar in currency markets.

But the Treasury has warned that such measures will only postpone the credit deadline until mid-March, when an extension will be needed.

This is the fourth time George W Bush's administration has asked Congress to raise the government debt limit.

His administration has produced a series of massive deficits, brought on by the post dot-com recession, tax cuts, the September 11 attacks and wars and reconstruction in Afghanistan and Iraq.

The US government has never defaulted on its debts, and to do so would destroy its credit rating and raise the cost of any future borrowing.

Story from BBC NEWS: