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Dual crises: Shutdown, debt limit could merge

By Tom Raum

Associated Press

Published: Saturday, Oct. 12 2013 5:37 p.m. MDT

With the U.S. government now poised to hit a $16.4 trillion legal federal debt barrier, another fiscal and constitutional crisis looms. Nobel laureate economist Paul Krugman has called for a $1 trillion coin. Others think the coin idea is absurd. Last week, the Obama administration, after dancing around it for days, officially disavowed it.

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WASHINGTON — Democrats and Republicans regularly warn about the dire consequences of legislation they don't like. Often it's gloom-and-doom partisan hype.

This time, though, people already are feeling the fallout as twin tempests — the partial government shutdown and a potential default on the country's debts — threaten to form a single economic-policy superstorm.

The shutdown began Oct. 1 because a divided Congress couldn't agree on a budget. Thousands of federal workers are furloughed, national parks are closed and many nonessential governmental services are dialed back or put on hold.

The shutdown doesn't directly threaten Social Security, other mandatory benefits or U.S. interest payments on the national debt.

Breaching the debt limit would.

Unless Congress raises that limit soon, the government will run out of the authority to borrow and pay its bills on Thursday, the Treasury Department says.

A default would challenge the U.S. dollar's status as the world's "reserve" currency. More than 60 percent of all foreign country reserves are in U.S. dollars, the prime currency in international trade.

"Without enough money to pay its bills, any of its payments are at risk — including all government spending, mandatory payments, interest on our debts, and payments to U.S. bondholders," the bipartisan Committee for a Responsible Federal Budget said in a recent report.

A look at what you need to know about the two fiscal matters:

The debt ceiling is the legal limit to all federal borrowing, an absolute ceiling on the national debt that cannot be breached.

It can be raised.

Since Congress first established a limit in 1917, it has been raised roughly 100 times. Raising the statutory limit does not authorize borrowing for new spending. It only allows the government to keep borrowing to pay existing bills.

The government borrows money mostly by selling Treasury bills, notes and other securities, including U.S. savings bonds. Individuals, mutual funds, corporations and governments worldwide buy the bonds.

Paying interest on these bonds is one of the government's largest single expenses.

In the budget year that ended Sept. 30, the government made $396 billion in interest payments, including payments on bonds held in some government accounts such as the Social Security Trust Fund.

The national debt is the accumulation of annual budget deficits. It first crossed the $1 trillion mark early in the administration of President Ronald Reagan.

It stood at $10.6 trillion when Obama took office in January 2009 and is $16.7 trillion today — bumping up against the debt limit, which is also $16.7 trillion rounded off.

Recently, the Treasury Department has used complicated accounting maneuvers to keep from technically exceeding the limit. But it's running out of such tricks.

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There are a couple Hail Mary plays the government could try if the deadlock persists: selling gold from U.S. reserves, selling or leasing government buildings or national parklands and minting special large-denomination coins.

The Obama administration has shown little interest in such steps.

One possibility was suggested in 2011 by former President Bill Clinton and more recently by House Democratic leader Nancy Pelosi of California: have Obama raise the ceiling on his own, citing the part of the 14th Amendment that says "the validity of the public debt of the United States, authorized by law ... shall not be questioned."

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