Congress Careens Toward a Crisis

Congress Careens Toward a Crisis

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Plus, debt default could cost US households $15 trillion
Tuesday, September 21, 2021
The Fisc

Congress Careeens Toward a Shutdown

It sure looks like we’re heading for a crisis.

The House is set to vote this evening on a stopgap government funding bill that would also suspend the federal borrowing limit through December 16, 2022 and provide money for disaster relief and resettling Afghan evacuees — but the legislation is likely doomed in the Senate, where Republican votes would be needed for it to pass.

Republicans insist they won’t help raise the debt ceiling because they oppose Democrats’ proposed $3.5 trillion package of social welfare spending and tax hikes on corporations and the wealthy. “They have the capacity to raise the debt ceiling by themselves, just like the capacity they have to spend money by themselves. So we're not going to help them do either one," Sen. Mitt Romney (R-UT) said Monday night.

That leaves it entirely unclear whether lawmakers will be able to prevent a government shutdown in 10 days or avoid a potentially calamitous debt default next month.

Democrats opted to link the suspension of the debt limit with an extension of funding for the federal government through December 3, essentially daring Republicans to oppose the whole package, including $28.6 billion in hurricane and wildfire relief, and bring federal operations to a halt.

“We know the Republican justification for forcing a default is totally dishonest, plain and simple,” Senate Majority Leader Chuck Schumer (D-NY) said Tuesday on the Senate floor. “Playing games with the debt ceiling is playing with fire and putting it on the back of the American people.”

Republicans have given no indication that they’ll back down, though — and Democrats have given little indication that they’ve got a fallback plan ready to go. They can still unilaterally raise the debt limit by adding an increase to their budget reconciliation package, though the process would take time and Democratic leaders have steered away from this option so far.

“In recent days, Democratic lawmakers have reassured they will not allow the country to default. Some have said they could ultimately take special legislative maneuvers to bypass the Republican blockade and adopt the debt ceiling increase on their own,” The Washington Post’s Tony Romm writes. “But the process could take days that Democrats simply do not have, meaning at least a partial or short-term government shutdown is possible even if Congress staves off a more apocalyptic financial meltdown.”

Hoyer says bipartisan infrastructure bill will get a vote next week: House Majority Leader Steny Hoyer (D-MD) told reporters Tuesday that the Senate’s $1 trillion bipartisan infrastructure bill will indeed be brought up for a vote next week, even though Democrats’ larger budget reconciliation bill won’t be ready by then. “This is a huge win for moderates in both chambers,” Politico’s Playbook PM notes. “That effectively decouples the two bills, officially spiking the so-called ‘two-track’ process that leadership hoped would enable passage of both while keeping the party united.”

Dozens of progressives say they won’t support the infrastructure bill without the reconciliation bill, as they try to maintain some leverage to force moderates to support the larger package. And House Republicans likely won’t provide many votes for the infrastructure bill, either. “It will not pass,” Rep. Pramila Jayapal (D-WA), chair of the Congressional Progressive Caucus, said of the infrastructure bill Monday, according to Punchbowl News. “The two have to go together. That was the deal made in the Senate. That was why the progressive senators voted for the infrastructure bill.”

Democrats cut Iron Dome funding from their bill: In another sign of the divisions between Democratic moderates and progressives, House Democrats on Tuesday pulled $1 billion in funding for Israel’s Iron Dome missile defense system from their bill after progressives objected to the provision. A spokesperson for House Appropriations Committee Chairwoman Rosa DeLauro (D-CT) said that the Iron Dome funding will be included in the final defense funding bill later this year, according to The Hill.

The bottom line: Tuesday’s House vote won’t do anything to prevent a government shutdown or debt default given Senate Republicans’ opposition to the legislation. And with Democratic differences far from resolved, the fate of President Biden’s Build Back Better plan remains up in the air as well.

US Debt Default Could Cost US Households $15 Trillion: Analysis

With Republicans vowing to reject any bipartisan effort to raise or suspend the debt ceiling, and Democrats sticking to their plan to address the limit through a bill that requires support from both parties, the threat of default on U.S. payment obligations now looms over the economy — a scenario that could cause an immediate and deeply painful recession, according to a new report from Moody’s Analytics.

In their analysis, Moody’s chief economist Mark Zandi and co-author Bernard Yaros found that an extended stalemate over the debt ceiling would cause a recession that reduces employment by as much as 6 million, pushing the unemployment rate up to 9%. And the stock market would crash, wiping out as much as $15 trillion in household wealth.

“This economic scenario is cataclysmic,” Zandi and Yaros said. “The downturn would be comparable to that suffered during the financial crisis.”

Though less dramatic, a short-term default would be damaging as well. “Even if resolved quickly, Americans would pay for this default for generations, as global investors would rightly believe that the federal government’s finances have been politicized,” Zandi wrote in a note to clients Tuesday.

Yellen issues another plea: In an opinion piece in The Wall Street Journal last weekend, U.S. Treasury Secretary Janet Yellen issued another warning on the debt ceiling, which currently stands at $28.4 trillion. Yellen said a default would spark a recession that would do permanent damage. "We would emerge from this crisis a permanently weaker nation," Yellen wrote.

“We can borrow more cheaply than almost any other country, and defaulting would jeopardize this enviable fiscal position,” Yellen said. “It would also make America a more expensive place to live, as the higher cost of borrowing would fall on consumers. Mortgage payments, car loans, credit card bills—everything that is purchased with credit would be costlier after default.”

One month to go: Moody’s estimates that the Treasury will be forced to default on payment obligations starting on October 20, and most experts have put the date somewhere in late October or early November. That gives lawmakers just a few weeks to figure out how to handle the debt limit before a potentially catastrophic default occurs. Both parties have said they are confident there will be no default, but for now there is no clear path forward to avoid such an outcome.

Moody’s warns that even if Congress resolves the problem before the default date, there may be a price to pay for the politicization of the debt limit. According to Zandi and Yaros, the battles over the debt ceiling in 2011 and 2013, when Republicans threatened to withhold support for raising the limit without concessions from Democrats, cost the U.S. economy dearly, reducing investment by as much as $180 billion and employment by 1.2 million jobs by 2015.

“Brinkmanship around this whole process will be reflected in higher cost to taxpayers,” Zandi told The Washington Post’s Jeff Stein. “There is a cost to doing this in a way that is not at least somewhat bipartisan.”

Quote of the Day

“I've been here for cliffs, and crises and wars. And this is going to be the biggest mash up we've ever had since I've been here with the debt limit, with the government shutdown, with reconciliation, and with infrastructure, and I have no idea how it all works out. No idea. That’s it.”

– Rep. Peter DeFazio (D-OR), chair of the House Transportation and Infrastructure Committee and a member of Congress since 1987, as quoted by Punchbowl News.

Tweet of the Day

From PBS NewsHour correspondent Lisa Desjardins:

“Basically what we have on the Hill *at the moment* is a bathtub full of cats, with various Democratic players throwing in more and more tangled balls to the already well tangled CR, debt and infrastructure situations.”

Biden Pledges to Double Aid for Developing Countries to Deal With Climate Change

President Biden announced that he would work with Congress to double the funding the United States provides each year to help developing countries cope with climate change and reduce their emissions. Biden said in April that the U.S. would double its spending to $5.7 billion, and his pledge Tuesday to double that figure again would lift the U.S. contribution to $11.4 billion. “This will make the United States a leader in public climate finance,” Biden said in a speech at the United Nations.

While some climate activists welcomed the announcement, they also warned that it was still not enough.

“Developed countries pledged more than a decade ago to begin providing $100 billion annually by 2020 to help the most defenseless nations deal with the deepening consequences of sea-level rise, heat waves, intensifying hurricanes and other effects of warming — and to hasten the transition away from fossil fuels as those economies grow,” The Washington Post’s Brady Dennis reports. “But that money has never fully materialized” — and data from the Organization for Economic Cooperation and Development show that, as of 2019, developed nations remained about $20 billion short of their promised total.

“Whether the latest climate finance figure represents a fair share for the United States, given its wealth and its role as the world’s largest historical emitter of greenhouse gases, is open to interpretation,” Dennis adds. “Earlier this year, an analysis by the independent international think tank Overseas Development Institute found the United States ideally should be contributing $31.9 billion to $49.4 billion a year toward climate help for developing nations. This week, a collection of advocacy groups, including the Natural Resources Defense Council and the Sierra Club, called on the administration to commit at least $12 billion per year by 2024.”

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