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Debt Nears Legal Limit; Financial Default Possible

By Jonathan Peterson
Los Angeles Times
WASHINGTON

Maneuvering to avoid a looming debt-limit crisis, the U.S. Treasury Department said Monday it was forced to postpone $31.5 billion in borrowing it had scheduled for this week.

The decision to delay Treasury auctions planned for Tuesday and Wednesday was the latest salvo in a heightening dispute between Congress and the White House over the $4.9 trillion debt limit, which has become entangled in politics over the federal budget.

Officials say the government can meet cash obligations until the middle of the month, when huge interest expenses threaten a financial crisis unless Congress grants authority to borrow further.

"These postponements are necessary because Congress has not completed action on legislation to increase the statutory debt limit..." the Treasury Department said in a brief statement.

Treasury Secretary Robert E. Rubin, who was in Israel on Monday for the funeral of Prime Minister Yitzhak Rabin, approved the decision following several telephone calls with aides, a spokesman said.

Although U.S. investors widely expect a political deal that will avoid a humiliating default by the federal government, foreign observers have been more worried. These concerns were reflected in the currency markets Monday, where the dollar fell against the Japanese yen, German mark and other currencies.

The federal government is now operating within a hair's breadth -- $2 billion -- of the legal debt ceiling, and is projected to remain in that zone all week.

Budget experts said Monday that the real danger of a government default would not occur until Nov. 15, when Treasury will owe $24.8 billion in interest on previously issued securities.

"It's gamesmanship up until the 15th of the month," said Martha Phillips, executive director of the anti-deficit Concord Coalition, referring to the political rhetoric over the debt limit. "And then it gets pretty serious."

Senate Majority Leader Bob Dole, R-Kan., said Sunday he believes Congress will boost the ceiling. "It will be lifted," he declared on NBC's "Meet the Press."

Republicans have talked about including measures to abolish the Commerce Department, overhaul the welfare system and restrict abortion on a proposed bill to increase the debt limit, for example.

White House officials have said repeatedly that the issue of balancing the budget and raising the debt ceiling should be kept separate, and President Clinton has threatened to veto legislation that comes with strings attached.

Republicans and the White House also have sparred over the question of how a U.S. default would affect the financial system. Some Republicans have maintained that it would pose little risk, because financial markets would recognize that the default was the byproduct of a far-reaching effort to balance the budget for the first time in years.