By David Lawder
WASHINGTON (Reuters) - The latest $1.2 trillion increase in the U.S. debt limit may not last through November's election and could provide fresh ammunition for Republicans to attack President Barack Obama on what they see as a particularly vulnerable point - spending.
Based on current deficit rates and borrowing estimates, some analysts say the United States could reach the debt ceiling again before the November 6 vote. This would force the U.S. Treasury to turn once more to accounting maneuvers to avoid the unthinkable: asking Congress for another increase as the presidential election campaign reaches its crescendo.
But any moves by the Treasury would likely not stop the issue from becoming fodder for Republican attack ads.
Estimates on when the United States will reach its debt limit vary, but they leave little room for the Treasury to cope with an economic shock, such as a global slowdown triggered by a worsening of Europe's debt crisis, which could shrink U.S. revenues and boost spending on unemployment aid.
"If the debt ceiling were to breached before the election, it would be possibly nuclear," said Ethan Siegal, who advises institutional investors on Washington politics.
A full replay of last summer's debt limit battle, which brought the United States to the brink of default and prompted a U.S. credit rating downgrade from Standard & Poor's, would rattle markets and put Obama at the mercy of Republicans in the House of Representatives bent on slashing spending.
A central theme of the Republican election strategy to recapture the White House is to portray Obama as presiding over a spending binge that has seen U.S. deficits surge to record levels, although the White House counters that the outlays were necessary to prevent the 2007-2009 recession becoming another Great Depression.
In a largely symbolic protest, the Republican-controlled House voted on Wednesday to reject the latest $1.2 trillion increase.
"There is a chance that we will burn through the debt limit increase by the election," said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. "It is unlikely that we would burn through the total amount and all the normal accounting maneuvers."
$300 BILLION SHORT
The budget deal that lifted the debt limit last summer was originally meant to last through 2012 and take the issue off the table for the election. But Obama never got the total potential increase of $2.4 trillion because a congressional deficit-cutting "super committee" failed to agree on discretionary spending cuts.
This limited the increase to $2.1 trillion, moving the timetable for again reaching the debt limit forward by two to three months at current deficit rates.
So far in fiscal 2012, which started October 1, the federal deficit has averaged $107.25 billion per month, just under the monthly pace for all of last year. At this burn rate, nearly $1.1 trillion of the $1.2 trillion increase would be consumed through October, leaving a cushion of only about $100 billion heading into the election.
And on November 15, Treasury will need to refinance about $88 billion worth of maturing debt as well as make a hefty interest payment.
Goldman Sachs analyst Alec Philips estimates that Treasury will reach the new debt ceiling of $16.394 trillion around mid-November, forcing Treasury to take accounting measures to get through the post-election "lame duck" session of Congress.
However, he noted that the strength of government revenues are difficult to predict.
Another source of uncertainty is the prospect of further capital injections into government-controlled housing finance giants Fannie Mae and Freddie Mac. The regulator for Fannie and Freddie has estimated that they could need up to $52 billion more in net taxpayer funds through 2014.
Of course, government revenues also could surprise on the upside if the U.S. economic recovery and job growth gains momentum this year. New budget deficit estimates are due in the coming weeks from the White House, the Congressional Budget Office and the Treasury's stable of Wall Street bond dealers.
These estimates are currently in the $1 trillion to $1.3 trillion range for the fiscal year ending September 30.
White House officials acknowledge that the United States will be close to the ceiling again around the time of the election but said the Treasury's accounting maneuvers could keep the government liquid until after the vote, and Congress would have to raise the limit shortly thereafter.
For Obama, the question is to what extent a re-emergence of the debt limit issue will focus a spotlight at the 11th hour of the election campaign on spending and debt accumulation during his tenure.
"The debt ceiling itself is sort of symbolic of the government not being able to figure out how to cut back spending and if that debate were to rise up with an event bringing it to the forefront of headlines, it's a problem for him," said Siegal, who heads The Washington Exchange.
(Additional reporting by Laura MacInnis; Editing by Eric Walsh)