The federal government is set to hit its borrowing limit of roughly $31.4 trillion on Thursday, setting the stage for what’s likely to be a months-long fight between House Republicans, the Biden White House and congressional Democrats.
The Treasury Department is set to start deploying “extraordinary measures” to avert a debt default, buying time, likely until June or later, for lawmakers to again raise the borrowing limit — or at least battle over the idea while financial markets sweat out the possibility of an economic calamity.
Where things stand: House Republicans led by Speaker Kevin McCarthy (CA) and a band of conservatives are demanding spending cuts in exchange for raising the limit and are pressing the White House to start negotiations now.
Of course, Republicans did not make such demands when it was necessary to raise the debt limit under former President Donald Trump. But some in the party see this as a rare opportunity to force cuts they have long pursued — and to make Democrats swallow some of the blame for moves that could well be politically unpopular. And some in the GOP are dead set on having a fight, convinced —despite past evidence —that they can win if only they hold strong. “There are two ways to [avert a default],” conservative Rep. Chip Roy (R-TX), told CNN recently. “Democrats and Republicans sit down and work honestly around the table to avert it, or brinkmanship, forcing the question by bringing it to the brink.”
For its part, the Biden administration refuses to engage, recalling the similar showdown under the Obama administration in 2011 that highlighted the nation’s growing political dysfunction and led to an unprecedented downgrading of the U.S. debt rating.
The White House has insisted that Congress should raise the ceiling without conditions. On Wednesday, it seized on a tweet by Rep. Andy Biggs (R-AZ) to warn that the GOP was playing with fire. “We cannot raise the debt ceiling,” Biggs tweeted Tuesday afternoon. “Democrats have carelessly spent our taxpayer money and devalued our currency. They've made their bed, so they must lie in it.” The White House responded by accusing Republicans of “unprecedented economic vandalism,” according to Bloomberg News.
“This is a stunning and unacceptable position that would lead to economic chaos, collapse, and catastrophe,” White House Spokesman Andrew Bates said of the Biggs tweet.
Not all Republicans are threatening to send the economy over that cliff, but it remains unclear what specifically the GOP would ask for in any potential talks — or whether the party can reach a consensus among its members.
The problem for right-wing Republicans, as others have noted, is that they are choosing to use the full faith and credit of the United States as their leverage —in effect, taking a hostage that they can’t shoot. Some, like Biggs, may be willing to shoot the hostage, consequences be damned, under the assumption that President Joe Biden and Democrat will get the blame, or at least a hefty share of it. House Republicans are reportedly preparing a contingency plan that would instruct the Treasury Department how to prioritize payments if a debt deal isn’t reached.
What’s at stake: The consequences of a debt default could be massive, inflicting widespread financial pain. Per Yahoo News: “Credit analysis firm Moody’s Analytics predicts that a four-month default would result in a 4% drop in the U.S. GDP, a 30% decline in stock prices, the erasure of $15 trillion in household wealth and cause companies to slash 6 million jobs.”
The bottom line: This will probably drag out for months. All signals right now point to a protracted fight with extremely high stakes for the global economy. And then, potentially, another fight over government spending and the federal budget, which could result in a government shutdown this fall.
The first step may be to ensure that everyone involved understands what’s at risk, and the difference between the two battles. The Washington Post’s Leigh Ann Caldwell said on CNN Wednesday: “There is an education campaign that is currently ongoing among House Republicans to teach House Republicans the difference between defaulting on the debt and a government shutdown and how these things don’t necessarily need to be linked so that people understand the parameters of the debate.”
