The U.S. Senate on Thursday approved a $781 billion increase in the federal government’s debt limit, the fourth time lawmakers have raised the cap since President Bush took office.
The Senate voted 52-48 to increase the legal limit on federal borrowing to $8.97 trillion, up from $8.18 trillion. The House avoided an election-year vote on raising the debt limit by automatically sending the bill to the Senate when it passed a budget last year.
The increase in the debt limit will bring more borrowing and “possibly a new round of spending,” said Richard Schlanger, who manages fixed-income assets, including Treasury bonds, at Pioneer Asset Management in Boston. “As long as foreigners are willing to finance us, bring it on.”
Democrats blasted the bill, saying it was needed because of fiscal mismanagement by Bush, who came to office when the government was running record surpluses. No Democrat voted for the bill.
“When it comes to deficits, this president owns all the records,” said Minority Leader Harry Reid (D-Nev.). “The three largest deficits in our nation’s history have all occurred under this administration’s watch.”
Only a handful of Republicans spoke in favor of the measure as a mostly empty Senate chamber conducted a brief debate. Three Republicans voted against it: Tom Coburn of Oklahoma, John Ensign of Nevada and Conrad Burns of Montana.
Senate Finance Committee Chairman Charles Grassley (R-Iowa) defended the increase, arguing that failing to act would mean either breaking the law by exceeding the borrowing limit or defaulting on the federal debt.
Treasury Secretary John Snow warned Congress in increasingly dire terms that the government couldn’t keep paying its bills, and risked defaulting on its debt, without an immediate increase in the cap.
After the vote, Snow said lawmakers had protected “the full faith and credit of the United States” and ensured the government “can deliver on promises already made, such as Social Security and Medicare payments and aid for the victims of the 2005 hurricanes.”
The federal debt has been $50 million shy of the current $8.18 trillion limit since Feb. 15. For the last month, the Treasury has been moving money between government accounts to stay below the debt limit and keep the government running. The Treasury said in January it plans to borrow $188 billion from January to March, the most ever for a single quarter.
“We’re funding a war, we’re trying to fund certain programs,” said Kevin Giddis, head of fixed-income trading at brokerage firm Morgan Keegan Inc. in Memphis. “We need [foreign investors]. We’re going to continue to need them, because if they go away, we’re going to have an inflationary situation.”
This is the fourth time the Bush administration has asked lawmakers to raise the debt limit, and it pushes the ceiling to 70.3 percent of gross domestic product, the highest since 1997. The four debt-limit increases in the 1990s pushed the ceiling above 70 percent of GDP, though it fell below that level by 2002.
Congress complied with the last request, in November 2004, after the Treasury was forced to delay auctioning bills and notes, and move money among government pension funds.
The debt limit was $5.95 trillion when Bush was first sworn in, and debt subject to limit will likely rise roughly another $1 trillion before he leaves office, according to estimates from the Congressional Budget Office, the Office of Management and Budget and the Senate Budget Committee.
Since Bush took office in 2001, the federal budget has gone from four years of surpluses, the longest such run since before the Great Depression, to deficits brought on by a recession, tax cuts, the Sept. 11 attacks, wars in Afghanistan and Iraq, and Gulf Coast hurricane damage.
