WASHINGTON – For nearly two decades, lawmakers in Washington have led a escalating hype on the federal government’s ability to borrow money to pay its bills. They forced the administrations of both sides to take evasive actions, pushing the nation dangerously close to economic calamity. But they never made the United States fail.
The dance is repeating itself this fall, but this time the dynamics are different – and the threat of default is greater than ever.
Republicans in Congress have refused to help raise the country’s debt limit, even though the need to borrow stems from the bipartisan practice of running large budget deficits. Republicans agree the United States must pay its bills, but on Monday they are expected to block a measure in the Senate that would allow the government to do so. Democrats, insisting that Republicans help pay for past decisions to increase spending and cut taxes, have so far refused to use a special process to raise the limit themselves.
Observers inside and outside Washington fear neither side will move in time, disrupting financial markets and capsizing the burgeoning economic recovery after the pandemic downturn.
If the limit is not increased or suspended, Treasury Department officials warn, the government will soon exhaust its ability to borrow money, forcing officials to choose between missing payments on military salaries, military benefits. social security and the interest it owes the investors who financed the US spending madness.
Yet Republicans have threatened to obstruct any attempt by Senate Democrats to pass a simple bill to increase borrowing. Party leaders like Sen. Mitch McConnell of Kentucky want to force Democrats to raise the limit themselves, through a congressional fast-track process that bypasses Republican filibuster. It could take weeks to materialize, raising the stakes every day that Democratic leaders refuse to pursue this option.
The problem is further compounded by the fact that no one really knows when the government will run out of money. The Covid-19 pandemic continues to ravage the United States in waves, frequently disrupting economic activity and the taxes the government collects, complicating the Treasury’s ability to assess its cash flow. Estimates for what is called the “date X” range from from October 15 in mid-November.
Amid this uncertainty, Congressional leaders and President Biden aren’t even trying to negotiate a resolution. Instead, they argue over who should be grappling with a vote that could be used against them, increasing the chances of partisan stubbornness propelling the country into a fiscal unknown.
It all adds up to a stalemate rooted in political messaging, mid-term campaign advertising and Republican leaders’ desire to do whatever they can to protest Mr. Biden’s economic agenda, including the $ 3.5 trillion spending bill that Democrats hope to push through party lines using a fast-track budget process.
Republicans say they will provide no votes to lift the debt ceiling, despite having racked up billions in new debt to pay for 2017 tax cuts, additional government spending and pandemic aid during the Trump administration. Democrats, on the other hand, helped President Donald J. Trump increase borrowing in 2017 and 2019.
“If they want to tax, borrow and spend historic sums of money without our help,” McConnell told the Senate this week, “they will have to raise the debt ceiling without our help.”
So far, Mr. Biden and Democratic leaders in Congress have refused to do so, even though using this process would end the threat of default.
Jon Lieber, a former aide to Mr McConnell who is now part of the Eurasia Group, a political risk consultancy in Washington, wrote this week in a warning to clients that there is a one in five chance that the dead end will happen. is pushing the country into at least one technical debt default – forcing the government to choose between paying bondholders and meeting all of its spending commitments – this fall.
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“It’s a crazy high for an event like this,” Lieber said in an interview, noting that the odds are significantly higher than in past dead ends. “But I’m really convinced that’s the level of panic we should be having.”
Under President George W. Bush, Democrats, including Mr. Biden, voted in 2006 against an increase in the debt ceiling, citing Mr. Bush’s budget deficits which have been inflated by tax cuts and wars. in Iraq and Afghanistan. They did so despite warnings from administration officials that a default would hurt the country’s credit rating and economy.
Mr. Biden, like many other Democrats, has said he cannot encourage Mr. Bush’s budget decisions. But his party did not obstruct a vote, and Republicans were able to push through an increase in the debt limit along party lines. White House officials said Mr Biden’s vote was symbolic, noting that Republicans’ ability to raise the debt ceiling was never in question.
The leaders of both parties have at times presented a version of the basic argument for raising the limit: it is simply a way of allowing the government to pay the bills it has already incurred. The two sides have also shown no signs of slowing the country’s borrowing frenzy, which accelerated last year as lawmakers approved trillions of dollars in aid for people and families. businesses grappling with the pandemic recession. Each party recently occupied the White House and controlled Congress, but neither has come close in recent years to approving a budget that would balance – that is, not require borrowing. or increase in the debt limit – within a decade.
Biden administration officials, former Treasury secretaries on both sides, and business executives across the country have all urged lawmakers to increase the borrowing limit as soon as possible.
“I think it’s scary for consumer confidence and for confidence in US businesses and potential credit scores if we don’t make sure we raise that debt ceiling,” said Andy Jassy, CEO from Amazon, on CNBC earlier this month.
Democrats say Republicans have a responsibility to help raise the limit, noting they helped when Mr. Trump needed to. White House officials have called Mr. McConnell’s position a hypocrite.
“Republicans in Congress have spent a decade ushering in a new era where the prospect of default and global economic collapse has turned into dangerous political football,” said Michael Gwin, White House spokesman , in an email. “As we bounce back from the deep recession caused by the pandemic, it is more important than ever to put partisanship aside, eliminate this cloud above our economy and responsibly tackle the borderline. debt – just as the Democrats did three times under the previous administration. “
Mr Lieber and other analysts fear party leaders will talk to each other. Experts suggest it would take a week or two for Democratic leaders to steer an increase in the debt limit through the fast-track budget process. This could make the government vulnerable to a sudden crisis. On Friday, the independent Bipartisan Policy Center, a Washington think tank, said the government could run out of money to pay its bills by mid-October.
Lieber said he was worried about the “risk of miscalculation on both sides”, in part because this stalemate is not the same as the one under Obama. “Republicans are not asking for anything,” he said. “So their position is that there is nothing you can do to get us to vote for an increase in the debt ceiling. It is a dangerous situation.
Goldman Sachs researchers warned in a note to clients this month that the volatile nature of tax revenue this year, a product of the pandemic, makes the debt limit “riskier than usual” for the economy. and markets. They said the stalemate was at least as risky as it was in 2011, when the collapsing trend disrupted bond yields and the stock market.
Other financial analysts continue to believe that, as in the past, the parties will eventually come to an agreement, in large part because of the consequences of failure.
“We believe Congress will raise or suspend the debt ceiling,” S&P US chief economist Beth Ann Bovino wrote this week. “A US government default would be far worse than the collapse of Lehman Brothers in 2008, devastating global markets and the economy. “
In the meantime, Republicans are waiting for a Democrats vote to raise the limit. Senator Rick Scott of Florida, who leads the Republicans’ campaign arm in the Senate, told an NBC reporter he was eager to highlight Democratic support for increasing the limit in mid-term advertisements.