Senate Approves Amendment to Raise Debt Ceiling by $1.9 Trillion

* The Wall Street Journal
* JANUARY 28, 2010, 1:53 P.M. ET

Senate Approves Amendment to Raise Debt Ceiling by $1.9 Trillion

By COREY BOLES

WASHINGTON—The Senate approved legislation Thursday increasing the federal government's borrowing limit by $1.9 trillion, enough to enable the Treasury to pay its bills through 2010.

The 60-39 vote was strictly along party lines with no Republicans joining the Democratic majority to approve the legislation.

Once the increase is signed into law, the federal government will be able to borrow up to $14.3 trillion, by far the highest amount of debt it has ever held on its books. The current limit of around $12.4 trillion would have been breached by the end of February.

House lawmakers must still take up the legislation and are expected to do so next week, according to a senior House Democratic aide.

The increase comes just over a month after Congress upped the borrowing cap by $290 billion from its previous limit of $12.1 trillion.

A vote to increase the debt ceiling is politically difficult but is largely symbolic. There is little chance Congress would allow the government to breach its debt limit. If there were to occur, the ramifications for the financial markets and the U.S. fiscal position could be disastrous.

Financial markets globally were roiled in November, when the government of Dubai, a much smaller entity than the U.S., warned it was unable to continue servicing its debt.

Under that scenario, the U.S. government would likely lose its prized top-shelf credit rating, be forced to pay substantially higher interest rates to its creditors and the value of the U.S. dollar could plunge.

Legislation raising the borrowing limit includes a measure requiring budgetary rules requiring every dollar in new mandatory spending be offset by new revenue or cuts elsewhere in the budget.

In the 1990s, the so-called "Pay-as-you-Go" rules were in place when the federal budget ran a healthy surplus, and Democrats hope its reinstatement will eventually lead to a similar result.

President Barack Obama had pushed for the passage of the pay-go rules, arguing they would go some way to rein in federal spending and the burgeoning budget deficit.

The federal budget deficit in fiscal 2009 was a record $1.4 trillion, and this week the non-partisan Congressional Budget Office forecast the fiscal 2010 deficit to be only slightly lower at $1.35 trillion.

Underscoring the difficulties the president faces in his drive to austerity, lawmakers rejected a separate measure that would have limited increases in discretionary spending by Congress.

In his State of the Union Address Wednesday night, Mr. Obama proposed to freeze discretionary spending for three years starting in fiscal 2011. In his speech, Mr. Obama pledged to veto any spending bills that increase discretionary spending during that period.

But given lawmakers weren't even willing to approve limits to discretionary spending, they may very well be reluctant to agree to a complete freeze later in the year.

The Senate defeated a measure that would have established a commission mandated to highlight duplicative or wasteful spending by federal government departments and agencies. On Tuesday, lawmakers voted down the creation of a commission to recommend the spending cuts and tax increases necessary to move the federal budget deficit back toward manageable levels.

Mr. Obama pledged to create such a commission using his executive authority. Lawmakers of both parties have said this approach wouldn't be effective as the president can't oblige Congress to hold a vote on such a commission's recommendation.

Taking the task of resolving the long-term fiscal imbalances from Congress' hands is an idea that has been around for years. As the nation's fiscal position has worsened, the concept has gained steam.

Write to Corey Boles at corey.boles@dowjones.com

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