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S&P: U.S. Could Raise Debt Ceiling to $6 Trillion.

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

March 15, 2002--The U.S. Treasury Department estimates that the US$5.95 trillion debt limit set by Congress could be reached by the end of March 2002, Standard & Poor's today said.

"While hitting the debt limit does not automatically shut down the operations of the government, because the federal government can continue to operate using its cash position, it certainly curtails the flexibility of the government to manage operations," said Amelie Cagle, vice president for marketing development at Standard & Poor's office in Washington, D.C.

In a recent article, "The U.S. Debt Ceiling: Going Up," Cagle said that in early February 2002, U.S. federal debt stood at less than US$100 billion below the ceiling, at $5.85 trillion. However, the gap has already narrowed to roughly US$25 billion below the ceiling, or US$5.93 trillion.

"As we approach April 15, more cash will be coming in as taxpayers send in their 2001 returns," said Cagle. "But in spite of this, sometime by the end of 2002, Congress will have to act to increase the federal debt limit."

The Bush Administration is asking for another US$750 billion increase in the debt limit to cover needs for the next few years-pushing the ceiling to over US$6 trillion.

Meanwhile, on March 1, 2002, the Treasury Department said it is planning actions to preserve cash balances to provide and maintain a cash cushion, which could involve canceling the sales of Patriot bonds and of State and Local Government Series (SLGS), used by state and local governments to refund previously issued debt.

The U.S. debt ceiling drew the spotlight in 1995, as Congress and the then Clinton Administration found themselves in a stand-off over increasing the statutory limit. While the process took months, the situation was ultimately resolved: in 1996, Congress raised the debt ceiling in three increments, to a total of US$5.5 trillion. In 1997, as part of the balanced budget agreement, the debt ceiling was raised to its current level of US$5.95 trillion.

"The key issue in increasing the debt limit this year is the size of the increase," said Cagle. On Feb. 13, 2002, Treasury Secretary Paul O'Neill sent a letter to Congress again requesting the increase. In that letter, Secretary O'Neill estimated that the debt limit will be reached by the end of March 2002 and asked for the US$750 billion increase.

Secretary O'Neill estimates that this amount would cover federal operations for the next few years and include room for new investment in homeland security. It also assumes no changes in the tax reductions passed last year. The Concord Coalition, a bipartisan organization focused on long-term economic prospects headed by former Senators Warren Rudman and John Kerry, suggests an incremental approach to the debt limit. The Concord Coalition recommends a limited increase this year while developing a new fiscal policy goal recognizing the changing situation of surplus revenue.

The Senate Finance Committee has held one hearing on the issue. House Ways and Means Committee Chairman William Thomas (R-CA), whose committee has jurisdiction over the issue in the House of Representatives, has said he will act to increase the limit in a timely manner, but has suggested that the increase be attached to another bill rather than move on its own.

The debt limit was instituted by Congress in 1917 to facilitate planning for World War I and to give the Executive Branch some flexibility in financing the federal government's activities. The first debt limit, set in 1917, was US$11.5 billion.

Legislation is normally introduced in the House and Senate and moves through approval by appropriate committees before passage by the House and Senate. But it is likely that this debt ceiling increase will not go forward as stand-alone legislation and will be attached to other legislation moving through Congress. Whatever the vehicle, Congress will consider raising the federal debt limit to over US$6 trillion this year.

For a copy of the full article, please visit RatingsDirect, our online credit analysis database, at www.ratingsdirect.com, or visit www.standardandpoors.com/Forum/RatingsCommentaries/Sovereigns.

Standard & Poor's is a leader in providing highly valued financial data, analytical research, and investment and credit opinions to the global capital markets. With more than 5,000 employees located in 18 countries, Standard & Poor's is an integral part of the world's financial architecture. Additional information is available at www.standardandpoors.com.

Copyright 2002, Standard & Poor's Ratings Services
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Publication:Business Wire
Geographic Code:1USA
Date:Mar 15, 2002
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