Every American could be hurt if the new Republican House’s dangerous game of roulette with a weak economy backfires.
The nation reached the critical first threshold Thursday in a brewing Washington showdown national debt That could determine the term of the new Republican majority and the last two years of President Joe Biden term.
Republicans are demanding deep spending cuts in return for fulfilling the routine duty of allowing the government to borrow more money after the credit limit is reached. But the White House refuses to negotiate. If the standoff continues until the expiration date in the summer, it could spell financial and stock market disaster and crash the retirement savings of millions. The government may also not have enough cash to make Social Security payments or benefits for federal workers or veterans.
Officially, the Treasury Department is expected to reach its $31.4 trillion borrowing limit on Thursday, but it plans to take Extraordinary budget measures to stave off disaster until June. Until that deadline looms, neither side is likely to budge.
Since the government spends more than it generates in revenue, it must borrow money to service its debts and pay for expenses that Congress has already authorized. It has no problem getting more credit because US always pays its bills and always has an excellent credit rating, despite the previous credit rating lowering the risk of default.
But it is not a way to run the economy. or country.
“This is about economic stability versus economic chaos,” Brian Daisy, director of the White House National Economic Council, said Thursday on “CNN This Morning.”
“We must not get in our way. We must not jeopardize and jeopardize all of this by endangering the full confidence and credit of the United States.”
This year’s debt-ceiling showdown could be its most serious yet, as Kevin McCarthy gave the Radical Conservatives whose votes he needs to become Speaker of the House assurances that the debt-ceiling would not be raised without deep cuts in government spending.
Things could derail because, essentially, Republicans seek to use the need to pay for past spending to force future spending cuts. Raising the debt ceiling has been risky in recent years when there’s a Democrat in the White House and Republicans control either house of Congress. Adding a strong whiff of hypocrisy to confrontation, the GOP has typically had no problem doing so under big-spending Republican presidents, and suddenly has developed an incentive to ensure fiscal discipline when there’s a Democrat in the Oval Office.
And now it is not yet clear whether McCarthy will be able to achieve this. Given his willingness to do anything to mollify hardliners to win his job, alarm bells are ringing from Wall Street to Washington about what might happen.
It may be impossible for a California Republican to raise the debt ceiling and keep his job — and as a result the country is heading toward a fiscal brink.
The opening exchanges erupted in what is expected to be an acrimonious showdown over debt on Wednesday when ultra-conservative Arizona Rep. Andy Biggs signaled he was willing to crash the economy to make good on his promise to voters.
“We can’t raise the debt ceiling,” Biggs wrote on Twitter. Democrats carelessly spent taxpayers’ money and devalued our currency. They have made their bed, so they must lie in it.”
The comment ignores the fact that a large portion of the debt that the government must now pay has accumulated during the Trump administration. It also offered the White House an opportunity to launch a campaign that would take months to shift the blame for the upcoming financial standoff to the Republican Party and increase pressure on McCarthy.
White House spokesman Andrew Bates said Biggs is completely wrong in actively supporting the destruction of millions of American livelihoods, 401k plans, and small businesses, all in the name of scorched earth bias.
“A default would unnecessarily plunge the country into economic chaos, collapse and disaster while giving our competitors like China a historic leverage against us,” Bates continued. “That is why Republicans in Congress—with strong bipartisan support—avoided default three times under Donald Trump, without strings attached or tampering with our credit rating. This president and the American people will not stand up to unprecedented economic sabotage.”
The gap between the two phrases sums up the great risks each side is taking. Most Republicans know they probably bear the blame for the economic collapse caused by the failure to raise the debt ceiling, but they are betting that, given the consequences will be so dire, the White House will collapse. The administration — in its position that it will make no concessions — is implicitly betting that the outrage and political damage to the GOP by failing to act is so bad ahead of the 2024 election that McCarthy will roll his eyes.
There is an analogy with nuclear deterrence – the consequences of using the ultimate weapon are so horrific and self-defeating that neither side believes the other will risk it. Or are they?
What makes the current showdown so risky is that it cannot be assumed that every Republican wants to avoid financial Armageddon. The Trump extremist wing of the party, which wields significant power in the House of Representatives given the GOP’s narrow majority, includes members who seem all too willing to blow up the country’s economic and political system and see where the pieces fall.
Of course, McCarthy could make this a lot easier and assemble a coalition of moderate Republicans who don’t want to crash the economy and Democrats. But since he has given hardliners the ability to write his political obituary — allowing for a return to the rule of allowing one lawmaker to call for a vote to oust him — he is unlikely to escape the consequences of building a final round around his party’s extremists.
The speaker appeared to be trying to lower the temperature of the confrontation this week, even as the most radical members turned it up, though he also issued a warning that the White House should negotiate spending cuts.
“If you have your child and you give them a credit card, and they keep raising it, and they’ve maxed it out, so you raise it again, and it increases cleanly, over and over. Are you going to keep doing that? Or are you going to change the behavior?” he said. “We’re six months away? Why don’t we sit down and change this behavior so we can put ourselves in a stronger position financially?”
That might sound reasonable. But Congress does almost nothing six months before the deadline. CNN’s Caitlan Collins reported Thursday that the president and spokesperson haven’t spoken about the issue yet.
Still, it would seem appropriate to many Americans that the Republicans — who won a House majority, just barely, in the November midterm elections partly on a platform of spending cuts — use the leverage they have to offer their constituents.
“The quickest way to ensure we have debt classification problems is to keep spending money that we don’t have and keep piling up debt and that’s what we do,” Texas Rep. Chip Roy, who extracted major concessions from McCarthy in the speaker race, told CNN Jake Tapper earlier this month.
However, the consequences of using the debt-ceiling fight to make this point are huge, given the pain that would follow a debt default. Republicans could instead wage this fight in the regular budget process, which would risk a government shutdown but might not hurt the economy so quickly.
The White House is also on the brink of a strategic political abyss. Biden knows that if he caves to House Republican pressure on this issue, everything will be ransomed and the domestic portion of his presidency will effectively end. And Senate Democrats, who control the chamber after adding a seat to their slim majority in the midterm elections, see no reason to be skewered by the House. Senate Majority Leader Chuck Schumer of New York is already blaming any financial meltdown on the hands of the GOP.
America pays its debts. a period. There should be no brinksmanship with a debt limit. It is reckless for Speaker McCarthy and Republican Maga to try to use the full faith and credit of the United States as a political bargaining chip, Schumer said in a statement on Tuesday. “Default would be disastrous for working families in America and drive up costs.”
Democrats have long been angered by the outcome of a deal between President Barack Obama and then-Republican House Speaker John Boehner in 2011 to defuse an earlier standoff over raising the debt ceiling. The two men agreed to a deal for future spending cuts that was so painful to each side’s priorities that both sides were supposed to be bound to finally reach an agreement to cancel it. But with Washington being Washington, the agreement was never materialized and spending limits remained in place for years, causing a headache of particular concern for the Pentagon.
Even this kind of imperfect deal to avoid a debt default seems impossible in current circumstances in a deeply divided Washington.
The fate of the economy may depend on McCarthy’s ability to advance his divided convention to some kind of compromise – a feat he may bypass after his chaotic and desperate bid to win the speakership.