No Default

The exchange was tense but predictable. Meeting with congressional leaders last week, Ronald Reagan reiterated his support for the controversial Gramm-Rudman amendment to balance the budget in five years. The President also insisted that Gramm-Rudman did not give Congress the right to rescind its earlier agreement to increase defense spending by 3% above inflation in the next two fiscal years. As lawmakers tried to explain that both the Senate and the House versions of deficit reduction call for deep cuts in military spending, Reagan gruffly insisted that a right-minded Congress could indeed achieve a balanced budget without sacrificing the defense buildup. Said Senate Minority Leader Robert Byrd after the meeting: "He obviously doesn't understand the bill."

For the third time in six weeks, the stalemate over Gramm-Rudman nearly paralyzed the Government. The amendment, a rigid formula for budget cutting that has aroused concern even within the President's Cabinet, is attached to a bill to raise the national-debt ceiling to more than $2 trillion. Congress was faced with the threat of the Government going bankrupt in a matter of days unless the debt limit was increased. Failing once again to reach a compromise on Gramm-Rudman, the legislators granted the Government a one-month extension on its borrowing power. Upshot: by Dec. 12, Congress and the President will find themselves confronted with yet another deadline for U.S. financial default.

To reach a zero annual deficit by 1991, the original version of Gramm-Rudman called for severe spending cuts in many social programs and in at least a chunk of the Pentagon budget. House Democrats have countered with a bill that could take a bigger bite out of the military while protecting food stamps, Social Security and veterans' benefits.

One factor leading to last week's tense encounter was a lobbying effort by Defense Secretary Caspar Weinberger and Secretary of State George Shultz, who urged the President to ensure that the proposed cuts would not threaten national security. But geopolitical considerations were partly responsible for the postponement of a showdown. The lawmakers decided that sending Reagan to Geneva with a fiscal default hanging over his head would be unseemly. Before leaving, however, Reagan vetoed an appropriations bill that overshot its targeted limit by $180 million. "Until Congress comes to grips with the problem of the large budget deficit," said Reagan, "[the veto] is an instrument I shall not hesitate to employ." If last week was any indication, the President will be braced for a tough Round 4 on Gramm-Rudman in December.