Lawmakers don't have much time to avoid a U.S. debt default and the deep recession that could follow.
Echoing recent warnings from Treasury Secretary Janet Yellen, the Congressional Budget Office said Tuesday that the U.S. Treasury faces the risk of default in a matter of weeks if Congress fails to raise or suspend the federal debt ceiling.
The Treasury has already bumped up against the current debt limit of $28.9 trillion and is taking what it calls extraordinary measures to continue to meet the country’s financial obligations. As required by the infrastructure legislation recently signed into law, the Treasury must make a payment of $118 billion to the Highway Trust Fund by December 15, CBO noted, and that payment could soon force the Treasury to delay or default on other payments.
“If the debt limit remained unchanged and if the Treasury made that transfer in full, the government’s ability to borrow using extraordinary measures would be exhausted soon after it made the transfer,” the CBO said. “In that case, the Treasury would most likely run out of cash before the end of December.”
Yellen warns again: Appearing before the Senate Banking Committee on Tuesday, Yellen said that while the economic recovery from the Covid-19 crisis is “on track,” failing to raise the debt limit could be disastrous.
“I cannot overstate how critical it is that Congress address this issue. America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery,” Yellen said in prepared remarks. “In a matter of days, the majority of Americans would suffer financial pain as critical payments, like Social Security checks and military paychecks, would not reach their bank accounts, and that would likely be followed by a deep recession.”
Talks in the Senate: The main obstacle to dealing quickly with the debt ceiling is the block of Republicans in the Senate, who have vowed to filibuster any attempt by Democrats to raise the limit on their own. Instead, Republicans want Democrats to use the reconciliation process to raise the limit, which Democrats says is just a strategy to eat up valuable floor time while generating plenty of material for negative GOP ads to be used in the 2022 midterm elections.
Although Senate Minority Leader Mitch McConnell (R-KY) has taken a hard line on the matter in the past, his position may be softening. Punchbowl News reports that McConnell seemed less confrontational when discussing the debt ceiling on Monday. “We’re still talking about that,” McConnell said when asked about his recent conversations with Senate Majority Leader Chuck Schumer (D-NY) on the issue.
Schumer also spoke in relatively positive terms, saying he had a “good conversation” with McConnell about raising the debt ceiling. “The talks between Schumer and McConnell are a notable shift from October, where the two regularly traded fire as they dug into their positions,” said The Hill’s Jordain Carney.
One possible compromise: An option that appears to be gaining momentum is for Democrats to raise the debt ceiling in a standalone reconciliation bill, Punchbowl reports, with Republicans agreeing to limit their delaying tactics and messaging votes. All 50 Republican senators would have to agree to that approach, however, and it’s not clear that McConnell can produce that level of cooperation.
One notable Republican is pushing hard against any cooperation on the matter. Former President Donald Trump released a statement Tuesday calling on Republican senators to use the debt ceiling to wage war on the Democrats’ agenda.
“Old Crow Mitch McConnell, who is getting beaten on every front by the Radical Left Democrats since giving them a two-month delay which allowed them to 'get their act together,' must be fully prepared to use the DEBT CEILING in order to totally kill the Democrat’s new Social Spending (Wasting!) Bill, which will change our Country forever,” Trump said.
“Use the Debt Ceiling, Mitch, show strength and courage,” Trump added. “Our Country is being destroyed.”