What now? The House of Representatives has defeated a constitutional amendment that would have required the federal government to balance its annual budget, but the issue must still be faced.

The House will vote later this year on specific ways to bring spending into line with revenues, and the outcome will be a serious matter for the bond market. If Congress fails then to break out of its business-as-usual deadlock, we see nothing but high long-term real interest rates and sluggish economic growth.

The 280-to-153 outcome last Thursday was just nine votes shy of the two-thirds needed to send the proposed amendment to the Senate and states for ratification. President Bush wanted it; liberal Sen. Paul Simon of Illinois wanted it; a majority of Americans wanted it, according to polls; and, indeed, 65% of the Congress voting last Thursday afternoon wanted it.

Ross Perot and Bill Clinton were against it. So were Paul Volcker and Robert Bork. The list goes on: the fiscally conservative U.S. Chamber of Commerce, which thought the amendment would bring higher taxes; the American Association of Retired Persons, which feared the amendment would result in cutbacks in Social Security and Medicare; and many municipal bond issuers, who were afraid Washington would find another excuse to pass along even more bills to strapped cities and states.

The vote was the fourth time since 1982 that Congress has considered but failed to approve a balanced budget amendment. The deficits keep rising, and economists continue warning that the United States is spending too much to service the national debt and too little on capital investment. After decades of this ritual, it's tough to decide whether we're close to fiscal Armageddon or whether it can go on and on indefinitely.

Fractious debate erupts annually in Congress. But the White House never submits balanced budgets, obviously because it would require gigantic spending cuts or equally monstrous tax increases or some combination of the two.

For all the lip service given to balanced budgets and the supposed approval by the general populace, no President in recent years has sent Congress an annual budget with spending equal to revenues. If balanced budgets are such a popular idea, why not?

The most important aspect of last week's vote is this: Democrat leaders kept more of their colleagues from joining Republicans by assuring them that a serious effort to reduce the deficit would come to a vote in the House this year. Members of Congress who voted against the amendment last Thursday need that serious effort to convince their constituents they have the will to stop the federal government's uncontrolled borrowing. Americans are genuinely worried about their future.

This vote must occur. If the House fails to follow through with convincing action that it will reduce federal spending, the bond market will suffer a genuine serious defeat. Real interest rates will rise, and states and cities will find it costs more to borrow.

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