Fannie/Freddie could pile onto U.S. spending woes

WASHINGTON (Reuters) - The U.S. government takeover of mortgage giants Fannie Mae and Freddie Mac -- and the potential cost to taxpayers -- comes as Congress faces a staggering credit-card bill already poised to get much bigger, budget analysts said on Monday.

While there are no firm estimates of how much the rescue of Fannie Mae and Freddie Mac could end up costing, the Treasury Department is committing to provide up to $200 billion to buy shares in the two companies.

This huge new exposure comes as taxpayers are being asked to shoulder other new burdens that will be debated in Congress as it begins a three-week work session.

"You wonder when are people going to wake up," said Robert Bixby, executive director of the Concord Coalition. "Everything that Democrats or Republicans want to do -- they say we can't worry about the budget because we have to do this, it's too important."

"There are so many of those promises out there that you have to start wondering who's going to bail out the government?" added Bixby, whose group pushes fiscal responsibility.

But with congressional elections less than two months away, Congress might be in a spending mood to help its members improve their standing with voters.

DEMANDS ON CONGRESS

Consider the following list of demands on Congress:

-- President George W. Bush has asked for $1 billion in new aid for Georgia, which was attacked by Russia last month.

-- Congress wants to renew approximately $100 billion in tax breaks. Democrats say they want to cover the costs by closing some tax loopholes and raising other revenues. Republicans want to borrow the money.

-- House of Representatives Speaker Nancy Pelosi, noting Bush's generosity toward Georgia, says Americans who are hard hit by an economic slowdown and rising consumer prices also need more help. She is suggesting about $50 billion in emergency aid to follow on the $152 billion in tax rebates and other economic stimulus already being spent this year.

-- Fannie and Freddie aren't the only U.S. companies hurting. Detroit-based automakers want $50 billion in loan guarantees to help them retool their assembly plants so that they can make smaller, more fuel-efficient cars.

-- About $1 trillion in spending for the thousands of programs that keep government running, from law enforcement to space exploration, must be passed for the fiscal year that starts October 1. Those programs have been growing in cost every year of Bush's two terms as president.

FISCAL TROUBLE

All of these requests for money are against a backdrop of deep fiscal trouble in Washington:

-- The Pentagon spends about $10 billion a month on the wars in Iraq and Afghanistan and every penny goes onto the national debt. The wars began as taxes were being slashed.

-- That debt stands at about $9.6 trillion, up from about $5.7 trillion when Bush took office. Much of the debt is financed by China, India and other foreign investors.

-- This year's budget deficit alone is expected to hit $400 billion, just shy of the record-breaking $413 billion in 2004.

-- With an aging population, the government faces a $53 trillion revenue shortfall over the next 75 years because of the rising costs of retirement and health care programs for the elderly. Nobody has yet figured out a politically acceptable way to match that shortfall.

Brian Riedl, senior budget analyst at the Heritage Foundation, a conservative think-tank, predicted: "There will not be one, single day when the economy collapses as a result of irresponsible budget policy."

But, he added, continued high deficits eventually will necessitate tax increases and "the economy will just begin growing more and more slowly, much like in Europe."

(Editing by Howard Goller and David Wiessler)