by - Democrats have insisted that raising the debt ceiling must be bipartisan, without negotiations.
- GOP lawmakers have ruled out a net increase, but have yet to detail what they want in a deal.
- The US could breach the debt ceiling as soon as July, CBO estimates.
Right now, Republicans and Democrats are playing a painfully slow game of chicken, each waiting for the other to cower.
The future stability of the global economic system is at stake. That’s because no one seems ready or willing to negotiate on how to raise the debt ceiling.
Since Republicans took over the House majority late last year, they have been thinking about how to deal with raising the debt ceiling and keep the country on top of paying its bills before the US goes into bankruptcy. The Congressional Budget Office estimated last month that the debt ceiling could be breached as soon as July.
The debt ceiling dictates how much money the government can borrow to pay off spending it has already authorized. It basically means that Congress must authorize more borrowing to pay off the bills it’s already raised — and, if the debt ceiling isn’t raised, the country will default.
As Treasury Secretary Janet Yellen has repeatedly warned, failure to raise the cap would be catastrophic and unprecedented, but instead of working with Democrats to quickly avoid those consequences, GOP lawmakers have signaled their intention to use the ceiling as leverage to achieve their own priorities. especially in the form of major spending cuts.
“Since 1789, the United States has paid all our bills on time. It should stay that way. In my estimation – and that of economists around the world – a default on our debt would spell economic and financial disaster,” Yellen said. on February.
House Speaker Kevin McCarthy has said he wants to continue negotiations with President Joe Biden on the terms of raising the debt ceiling, but has yet to reveal exactly what those terms are.
“Defaulting our debt is not an option,” McCarthy said in remarks last month. “But neither is a future of higher taxes, higher interest rates and an economy that doesn’t work for working Americans.”
The impasse has Democratic lawmakers, who want to raise the cap without tying it to spending cuts or other conditions, frustrated as the country moves ever closer to a default. On Thursday, Senate Majority Leader Chuck Schumer He wrote on Twitter that “the GOP is divided and can’t unite around a plan to raise the debt ceiling. The hard right demands spending cuts. Will they cut Medicaid? Pell Grants? Food for kids?”
“Speaker McCarthy: It’s March 2, Where’s Your Plan?” Schumer wrote.
After meeting with Biden earlier this week, Schumer told reporters that the president “doubled down” and would not accept a “hostage” CNN’s Manu Raju. Instead, Schumer said “they should just show us their budget.”
What we know about the GOP spending cuts
Biden and Democratic lawmakers have repeatedly pressed Republicans for a plan to raise the debt ceiling. They haven’t provided one yet – but they’ve floated some ideas that could signal where they could eventually settle on a potential deal.
The only thing Republican lawmakers have made clear so far is that they’re keeping cuts to Medicare and Social Security off the table. In January, McCarthy said those programs would not be included in the negotiations, and the Republican House Budget Committee reiterated that they only want to strengthen these programs, not cut spending.
But the absence of a concrete plan from Republicans has left Democrats questioning whether Medicare and Social Security will truly be left unscathed as a deal on the debt ceiling takes shape.
“You say Social Security and Medicare are out of the question, but until the American people see a plan, they can’t take the president at his word,” Schumer said Thursday.
The Republican House Budget Committee unveiled a list of ten key areas marked for spending cuts last month, which included ending student debt relief, placing work requirements on programs like SNAP and cutting environmental programs.
And former President Donald Trump’s budget chief, Russell Booth, appears to be influential in debt ceiling discussions as well. The Washington Post reported that Vought presented his 104-page budget plan, titled “A Commitment to End Woke and Weaponized Government,” to some GOP lawmakers, which includes proposed budget cuts for every federal agency.
Among his proposed cuts are ending the federal student loan program, cutting funding for housing and ending CDC programs aimed at preventing chronic disease.
What happens next?
If nothing happens and nobody blinks, the country will face the biggest financial crisis in history.
If the US defaults on its debt, the stock market will crash. Millions would likely lose their jobs. US Treasuries, which are key assets in global finance, will suddenly plunge into chaos.
“We would just start a global financial crisis. What will happen after that? Nobody knows,” Zachary D. Carter, author of “The Price of Peace: Money, Democracy and the Life of John Maynard Keynes,” previously said on Insider.
“I’m just worried that we’re going to see the same dynamic game over and over again, where every time it reaches a crisis point, politicians claim to be very interested in it — usually as an excuse to force the other side into some kind of submission,” he told the Insider Rohan Gray, assistant professor at Willamette University College of Law. “And then the minute that moment ends, we’re back to the same dynamic afterwards.”
“This is a game of chicken,” Gray added. “And a game of chicken requires two people to do the same thing, which is driving down a freeway head-on, going a hundred miles an hour, saying, can you believe that guy doesn’t go off the road?”
Some economists — even lawmakers — have offered a no-nonsense alternative to bypassing the debt ceiling crisis altogether: minting a trillion-dollar platinum coin. This idea stems from a loophole in the Treasury Department’s minting jurisdiction. Technically, the Treasury can mint platinum coins of any denomination. One school of thought believes that Yellen should simply mint a trillion dollar platinum coin and then deposit it with the Fed to head off any default concerns.
“It should have been time for the coin a month ago,” Gray said. When it comes to criticisms that the currency is a media stunt, “it’s a media stunt to get attention – because they weren’t paying attention until now.”
However, Yellen continues to dismiss the currency and its sustainability, so it appears that Democrats and Republicans will have to find a different way forward.
For now, the Biden administration has argued that raising the debt ceiling should be done in a bipartisan manner and without negotiations. Republicans have raised the cap three times under Trump, and the president has argued there’s no reason this time should be any different.
“They paid America’s bills then, so why won’t they pay them now?” Biden said during remarks Wednesday. “Well, they didn’t put the country in crisis then, and they shouldn’t do it now. If they weren’t going to cause pain to the American people then, why would they do it now?”
“Well, the answer is very simple: politics,” Biden continued. “I’m not going to be a part of that. You know, they have no business playing politics with people’s lives and our economy. Working with all of you, we won’t let them either.”
