Every American could be hurt if the new hardline Republican House plays a dangerous game of roulette with a still-fragile economy that backfires.
On Thursday, the United States reached the first critical threshold in a national debt showdown brewing in Washington that could determine the term of a new Republican majority and the final two years of Joe Biden’s presidency.
Republicans have demanded deep spending cuts in exchange for the routine duty of allowing the government to borrow more money after it hits its credit limit. But the White House refused to negotiate. If the impasse persists until a dead end in the summer, it could unleash financial and stock market disaster and wipe out millions of people’s retirement savings. The government also may not have enough cash to pay Social Security, federal worker or veterans’ benefits.
The Treasury Department is officially expected to hit its $31.4 trillion borrowing limit on Thursday, but it plans to take extraordinary budgetary measures until June to avert disaster. Neither side is likely to budge until the deadline looms.
Because the government spends more than it takes in, it has to borrow money to service its debts and pay for the spending Congress has authorized. No problem getting more credit because America always pays its bills and has always had a top-notch credit rating, despite previous downgrades due to the threat of default.
But that’s not the way to run an economy. or a country.
“It’s about economic stability versus economic chaos,” White House National Economic Council Director Brian Dees said on “CNN This Morning” Thursday.
“We can’t do things our way. We can’t put all of this at risk, and we can’t jeopardize this by putting the entire confidence and credibility of the United States at risk,” he said.
This year’s debt-ceiling showdown could be the riskiest yet, as Kevin McCarthy gave radical conservatives the votes he needed to become speaker of the House of Representatives assurances that the debt ceiling would not be raised without slashing government spending.
Things could get derailed because, in essence, Republicans are trying to use the need to pay for past spending to force cuts in future spending. Raising the debt ceiling has been controversial in recent years when Democrats are in the White House and Republicans control both chambers of Congress. Adding a strong air of hypocrisy to the impasse, the Republican Party, which normally has no problem with a Republican president with a big hand, suddenly has an urge to ensure fiscal discipline when there are Democrats in the Oval Office.
Whether McCarthy can deliver is far from clear. Given his willingness to do anything to appease hardliners to win his job, alarm bells were ringing on both Wall Street and Washington about what could happen.
It may be impossible for the California Republican to both raise the debt ceiling and keep his job — so the country is headed toward the brink of a fiscal cliff.
A bitter confrontation over debt is expected on Wednesday after hardline conservative Rep. Andy Biggs of Arizona said he was willing to keep the economy afloat to keep a promise to voters.
“We can’t raise the debt ceiling,” Biggs tweeted. “Democrats are carelessly spending our taxpayers’ money and devaluing our currency. They’ve made their bed, so they have to lie on it.”
The comment ignored the fact that a large portion of the debt the government now needs to pay was accumulated during the Trump administration. It also presents an opportunity for the White House to launch a months-long campaign to blame the Republicans for the impending fiscal standoff and ramp up pressure on McCarthy.
“Rep. Biggs is simply wrong to actively support millions of American livelihoods, 401k plans, and the destruction of small businesses in the name of scorched-earth partisanship,” White House spokesman Andrew Bates said.
“A default would unnecessarily plunge the country into economic chaos, collapse and disaster, while giving our competitors like China a historic boost over us,” Bates continued. “This is why Congressional Republicans – with strong bipartisan support from Democrats – have avoided 3 unconditional defaults or joking with our credit ratings under Donald Trump. This President and the American people do not Unprecedented economic devastation will be tolerated.”
The gulf between the two accounts encapsulates the high-stakes gamble both parties are taking. Most Republicans know they could be blamed for failing to raise the debt ceiling and causing the economy to collapse, but they are betting that with the consequences so severe, the White House will collapse. The administration — in stating its position that it won’t budge — is implicitly betting that the anger and political damage the Republicans will suffer for failing to act will be so bad before the 2024 election that McCarthy will blink.
There is an analogy to nuclear deterrence – the consequences of using an ultimate weapon are so dire and self-defeating that neither side believes the other will take the risk. Or will they?
What makes the current impasse so dangerous is that it cannot be assumed that every Republican wants to avoid fiscal Armageddon. Given the GOP’s slim majority in the House, the party’s extreme Trump wing wields considerable power, including some members who appear poised 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 cobble together a coalition that includes moderate Republicans and Democrats who don’t want the economy to collapse. But because he gave hardliners the right to write his political obituary — allowing the restoration of rules that allowed a single lawmaker to call for a vote to remove him — he is unlikely to survive the fallout from an end to the extremists surrounding his party.
The speaker appeared to be trying to lower the temperature of this week’s showdown, even as more extreme members turned it up, though he also issued a warning that the White House would have to negotiate spending cuts.
“If you have your kid, you give him a credit card, and they keep raising money, they hit their limit, so you raise money again, clean up, over and over again. Are you going to keep doing that? Or would you change the behavior?” he said. “We have six months left? Why don’t we sit down and change this behavior and put ourselves in a better position financially?”
That might sound reasonable. But Congress almost never does anything six months before a deadline. CNN’s Kaitlan Collins reported Thursday that the president and speaker have yet to speak on the issue.
Still, to many Americans, it seems that Republicans — who narrowly won a House majority in November’s midterm elections, using a platform in part on spending cuts — should use the leverage they have to offer voters. is suitable.
“The fastest way to guarantee we have a debt rating problem is to keep spending money we don’t have and keep accumulating debt, and that’s what we’re doing,” said Rep. Chip Roy of Texas, who won major concessions from McCarthy this month. told CNN’s Jake Tapper earlier.
However, the consequences of using the debt-ceiling battle to justify it are enormous, given the pain that comes with defaulting on a debt. Republicans could wage this fight during the normal budget process, which could risk a government shutdown but probably not drag the economy down so quickly.
The White House is also on a strategic political knife edge. Biden knows that if he caves to pressure from the Republican House of Representatives on this issue, he will be held to ransom over everything and the domestic portion of his presidency will effectively end. Senate Democrats, who took control of the House of Representatives after adding a seat to their narrow majority in midterm elections, see no reason to crowd the chamber with them. Senate Majority Leader Chuck Schumer in New York has already blamed any financial crisis on Republicans.
“America pays its debt. Period. There should be no political brinkmanship on the debt ceiling. It is reckless for Speaker McCarthy and MAGA Republicans to try to use America’s full trust and credit as a political bargaining chip,” Schumer said in a statement Tuesday said in. “A default would be disastrous for America’s working families and lead to higher costs.”
Democrats have also long been unhappy with the outcome of a 2011 deal between President Barack Obama and then-Republican House Speaker John Boehner to defuse an earlier showdown over raising the debt ceiling. The two agreed to a deal on future spending cuts that were so painful to both parties’ priorities that it was assumed that an agreement would eventually be reached to eliminate them. But because Washington is Washington, the deal never materialized, and spending caps have been in place for years, creating a particular headache for the Pentagon.
Even an imperfect deal that prevents a default on the debt looks impossible in the current climate of deeply divided Washington.
The economy’s fate may depend on McCarthy’s ability to forge some kind of compromise in his conference — a feat that may be beyond his reach after his chaotic and desperate campaign to win the Speaker’s seat.