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Debt Ceiling Looms as Next Big Battle


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The brawl in Washington over how to fund the government through September has served as a dry run for looming fights with higher stakes, particularly the debate over whether to raise the limit on how much the government can borrow.

The divisive fight has raised concerns among lawmakers and government officials that Democrats and Republicans in Congress will find it even harder to decide whether to increase the federal debt ceiling above $14.294 trillion in the next few weeks. And after that, they will have to turn to crafting a government budget for 2012 and eventually to tackling the long-term federal deficit.

"It's taken us some time to get acquainted with each other and to work our way through this, because understand that this process that we're in is likely to be repeated a number of times this year," House Speaker John Boehner (R., Ohio) said, referring to talks over the current budget.

The stakes are higher in the next round, shifting from worries about closing national parks to concerns the U.S. government could default on its debt, triggering another financial crisis.

"It's one thing to play brinksmanship on a government shutdown, which can be fixed in a minute without many long-term consequences," said Lee Sachs, a former counselor to Treasury Secretary Timothy Geithner. "It's another thing to do it with the debt ceiling, where the impact of failure would be catastrophic for years, if not decades."

Many congressional Republicans say they will refuse to raise the debt ceiling without more spending cuts. The White House and many Democratic lawmakers want the ceiling raised immediately, warning that if the country defaulted on its debt, interest rates would soar, sparking another financial crisis and crippling hundreds of thousands of businesses.

Some administration officials had believed raising the debt ceiling would attract political posturing, but ultimately would occur without much of a scare. Now there are fears that the bad feelings from the spending fight could poison debt-limit talks that haven't even begun in earnest.

"One could only hope that the lesson that could be learned from this is the importance of figuring out solutions and not positioning," said Kenneth Duberstein, former Reagan White House chief of staff. "But what it looks like right now is sheer chaos, dysfunctional White House leadership, or lack thereof."

White House officials have said they have worked aggressively to avert a shutdown and made repeated concessions to Republicans to win a deal, with President Barack Obama hosting multiple meetings this week to help negotiations.

No later than May 16, the government is set to hit a $14.294 trillion borrowing limit that can only be raised by Congress. Once the Treasury bumps against the ceiling, it can't issue any more debt. The Treasury issues debt to borrow money used to pay the country's bills, including interest on previously issued debt.

The U.S. had $14.212 trillion in debt as of Thursday, putting it $82 billion under the ceiling. Treasury has a number of emergency measures it can use to buy some extra time, but it will run out of headroom by July 8, when the government could go into default. Mr. Geithner said such a scenario would be "unthinkable."

In recent days, a handful of lawmakers and administration officials have begun ramping up efforts to try to win support for raising the debt ceiling, but they have met with mixed success.

Mr. Geithner had planned to meet behind closed doors Thursday with lawmakers on the Senate Finance Committee to try to win support for raising the debt ceiling. But the meeting was canceled as negotiations over the 2011 budget dragged on.

Meantime, many Republican voters applaud their representatives in Congress for taking a hard line in the spending debates. "I think the leadership needs to dig heels in on this budget," said Dave Funk, an Iowa tea-party activist and co-chair of the Polk County Republican Party. "This is a precursor of things to come."

Separately, a group of U.S. senators—three Republicans and three Democrats known as the "Gang of Six"—have intensified closed-door discussions about a package of cuts and revenue increases that would cut $4 trillion from the federal budget deficit over 10 years. They have been in constant contact with Erskine Bowles, a Democrat who was co-chairman of the White House's deficit-reduction panel last year. Their plan would essentially reduce the deficit by setting caps and targets that Congress would have to meet on things like taxes and spending.

Some hope this group's effort could give lawmakers political cover to vote to raise the debt ceiling. The group has yet to produce a plan, but people familiar with the talks say they have stepped up significantly in recent days.

Several lawmakers from both parties said Friday that they hoped the squabbling over spending for the next six months would refocus lawmakers on the need to broker a bipartisan deal on broader budget issues, such as taxes and entitlement programs like Medicare.

"If there's anything that we've got to learn from this, if we start with guns ablazing at each other, we're not going to be able to take on the real issue that confronts us," said Sen. Mark Warner (D., Va.), referring to the country's debt.

—Jonathan Weisman contributed to this article.

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Obviously $38.5 billion in spending cuts is better than one with no spending cuts, but make that a big but:

The federal debt increased $54.1 billion in the eight days preceding the deal made by President Barack Obama, Senate Majority Leader Harry Reid (D.-Nev.) and House Speaker John Boehner (R.-Ohio) to cut $38.5 billion in federal spending for the remainder of fiscal year 2011, which runs through September.

What you’re witnessing here is merely a skirmish. The real "war" comes when the president’s budget meets the Republican House’s budget (with the Senate thrown in to completely confuse the situation). The real war takes place with the 2012 budget.

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