Biden Warns GOP Agenda Would Bring Chaos

By Yuval Rosenberg

We hope you had a good Thursday. President Joe Biden on Thursday celebrated some solid economic data and lambasted “MAGA Republicans in the House of Representatives” who he said are threatening to “destroy” the progress made under his administration. Republicans, meanwhile, are reportedly considering an idea to gain leverage in the coming fight over the debt limit.

Here’s what you should know.

Biden Warns GOP Agenda Would Bring Chaos

As Republicans and Democrats gird for a prolonged fight over the debt ceiling, President Biden on Thursday attacked the GOP for ideas that he said could result in economic chaos.

At an event held in a union facility in Springfield, Virginia, to tout his economic agenda, Biden went through a list of GOP proposals. He said Republicans are looking to slash Social Security and Medicare benefits and are threatening to default on America’s debt.

“This one I love: They want to impose a 30% national sales tax on everything from food, clothing, school supplies, housing, cars, the whole deal,” he said, citing a plan proposed by some House conservatives. House Speaker Kevin McCarthy (R-CA) has promised to bring that plan, called the FAIR Tax Act, up for a vote, though he also told reporters this week that he opposes it.

Biden promised he would “veto everything” House Republicans send to him. And he said again that he won’t negotiate over raising the debt limit. “I will not let anyone use the full faith and credit of the United States as a bargaining chip,” Biden said. “In the United States of America, we pay our debts.”

Biden’s comments come as he and Republicans led by McCarthy appear destined for a drawn-out confrontation over the nation’s economic policies, debt limit and government spending.

“Washington Democrats’ $10 trillion spending spree created a vicious cycle of deficit spending leading to high inflation and rising interest rates that are crushing families and small businesses,” House Ways and Means Committee Chairman Jason Smith (R-MO) said in a statement Thursday. Smith called on Biden and Senate Majority Leader Chuck Schumer (D-NY) to negotiate on spending cuts. “Unless Congress can get a handle on its spending problem, the American people worry the economy will not deliver for them,” he said.

Republicans Considering a Short-Term Debt Limit Suspension: Report

House Republicans are reportedly considering one or more short-term suspensions of the debt limit — not just to defuse the threat of a potentially catastrophic default but to maximize their leverage as they try to force Democrats to engage in negotiations on spending cuts.

Roll Call’s Paul M. Krawzak reported Wednesday evening that House Republicans are “mulling” buying some more time in the debt limit clash, potentially matching up the deadline for an increase in the borrowing cap with the end of the fiscal year — a move that would more closely align the debt and spending issues House GOP lawmakers are trying to link together.

“Sources familiar with the talks described them as preliminary and subject to change after discussing with the House GOP rank and file,” Krawzak says. “But there has been support within the conference for the basic idea of tying the two deadlines together — the debt limit ‘x date’ and the end of the fiscal year —to create more pressure for a deal.”

Krawzak adds that any short-term measure would likely suspend the debt limit rather than raise it. “That would presumably make it easier for Republicans to swallow voting for it after pledging to only back a debt limit increase if paired with spending cuts,” he explains.

Where we go from here: The debt limit fight between Republicans and Democrats is only just beginning and is sure to see plenty of twists and turns as we approach the deadline later this year to avert a potentially catastrophic default.

Politico’s Adam Cancryn and Eugene Daniels report that some experts are worried that this standoff won’t be resolved without significant pain: “From the White House to Wall Street, a growing number of veterans of the 2011 debt ceiling crisis are again watching a story of bluster and brinkmanship play out — and are terrified this will be the time it ends with the country in financial ruin.”

Brendan Buck, who was an aide to Republican House Speaker John Boehner in 2011 told Politico that the challenges this year may be greater than they were back then.

And Dan Pfeiffer, who was an advisor to President Obama, told Politico that McCarthy may be less amenable to dealing that Boehner was. “Boehner may have been willing to put more of his ass on the line. He did intellectually and substantively understand why default was terrible,” Pfeiffer said. “I’m not sure that McCarthy understands that, that McCarthy cares, that McCarthy would value the full faith and credit of the United States over his own job.”

No Recession Yet: Economy Grew 2.1% in 2022

Plenty of people from Wall Street to Main Street are worried about a possible recession, but data released Thursday showed that the U.S. economy continued to grow at a solid pace at the end of last year, even as the rate of growth softened amid high inflation and rising interest rates.

Gross domestic product grew by 2.9% in the fourth quarter of 2022, the Bureau of Economic Analysis announced Thursday in its initial estimate for the period. The results beat expectations in the range of 2.6% to 2.8%, with growth driven by consumer spending on services, business investment and inventory replenishment.

For all of 2022, the economy grew 2.1% — a strong performance given the negative growth recorded in the first half of the year and the Federal Reserve’s interest rate hikes totaling a cumulative 4.5 percentage points throughout the year. Measured from fourth quarter to fourth quarter, GDP grew just 1%, down from 5.7% in 2021.

“The economy is slowing, but the above-forecast number will ease recession fears at the same time,” Fawad Razaqzada, an analyst at City Index, told Bloomberg. “They call this the ‘Goldilocks’ scenario.”

Celebrating a “remarkable” recovery: The White House touted the news, with President Joe Biden tweeting, “Our economic plan worked. And it still is.”

Many analysts agree that, whatever the cause, the recovery has been remarkable, with the economy in better shape than many had expected, given the challenges. “Sometimes you need to look at the big picture,” says Heather Long of The Washington Post. “It's been an incredible rebound from the 2020 pandemic recession. The US has recovered all output lost in the crisis and gotten back on trend.”

Inflation remains too high, as does poverty, Long added. “But to recover all jobs and output in basically 2 years is remarkable.”

Gray clouds on the horizon: Despite the solid growth numbers, many analysts and business leaders still expect the economy to slide into a recession at some point this year, driven by the Fed’s campaign to tighten the screws on economic activity by raising interest rates and restricting the money supply. The Fed is expected to raise rates again next week, with most analysts projecting an increase of 25 basis points.

Ian Shepherdson, chief economist at Pantheon Macro, noted that nearly half of the GDP growth last quarter involved inventory restocking, which is unlikely to be sustained over time. The growth in final domestic spending was less than 1%, which Shepherdson says points to weaker results in the first quarter of 2023.

“You may see [growth] and think the economy is out of the woods, but that would be entirely the wrong read,” Joseph LaVorgna, chief economist at SMBC Nikko Securities America, told The Washington Post. “There are a lot of variables that are all pointing in the same direction: There’s a housing recession. Manufacturing looks like it’s approaching recession. We’re seeing weakness in temp hiring. And it’s doubtful we’ve felt the full effects of all of the Fed’s rate hikes.”

Goldman Sachs Chief Economist Jan Hatzius said this week that he sees a 35% chance of recession ahead, but Joseph Brusuelas, chief economist at the consulting firm RSM, puts the odds of recession at 65%.

Send your feedback to yrosenberg@thefiscaltimes.com.

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