by - Democrats have insisted that the debt ceiling hike should be bipartisan and non-negotiable.
- GOP lawmakers have rejected a clean raise but are yet to provide details of what they want in a deal.
- The US could breach the debt ceiling as early as July, the CBO estimated.
Right now, Republicans and Democrats are playing a painfully slow chicken game, waiting for the other to flinch.
The future stability of the global economic system is at stake. That’s because no one is ready or willing to negotiate how to raise the debt ceiling.
Ever since Republicans took control of the House of Representatives late last year, they have debated how to deal with raising the debt ceiling and ensuring the country cannot pay its bills before the US defaults. The Congressional Budget Office estimated last month that the debt ceiling could be breached as early as July.
The debt ceiling dictates how much money the government can borrow to pay off spending that has already been approved. It basically means that Congress must authorize more borrowing to pay the bills it has already racked up — and unless the debt ceiling is raised, the country will default on those bills.
As Treasury Secretary Janet Yellen has repeatedly warned, not raising the cap would be disastrous and unprecedented, but rather than working with Democrats to quickly avoid those consequences, GOP lawmakers have stated their intention to use the cap as a bargaining chip to achieve their own priorities – particularly in the form of massive spending cuts.
“Since 1789, the United States has paid all of our bills on time. It should stay that way. In my estimation – and that of economists across the board – a default on our debt would result in economic and financial disaster,” Yellen said in February.
House Speaker Kevin McCarthy said he wants to continue negotiations with President Joe Biden on the terms of raising the debt ceiling, but he has not yet revealed what exactly those terms are.
“Defaulting on our debt is not an option,” McCarthy said during a speech last month. “But neither is a future of higher taxes, higher interest rates, and an economy that doesn’t work for working Americans.”
The standoff has frustrated Democratic lawmakers who want to raise the ceiling without tying it to spending cuts or other conditions as the country moves closer to a debt default. On Thursday, Senate Majority Leader Chuck Schumer wrote on Twitter that “the GOP is divided and unable to agree on a plan to raise the debt ceiling. The extreme right is calling for spending cuts. Will they cut Medicaid? Pell Grant’s? Food for kids?”
“Announcer McCarthy: It’s March 2nd, what’s your plan?” Schumer wrote.
After meeting Biden earlier this week, Schumer told reporters that the president was “doubling down” and would not accept “hostage situations.” CNN’s Manu Raju. Instead, Schumer said, “They should just show us their budget.”
What we know about GOP spending cuts
Biden and Democratic lawmakers have repeatedly pressed Republicans for a plan to raise the debt ceiling. They haven’t provided any yet – but they’ve circulated a few ideas that might signal where they might eventually settle on a potential deal.
The only thing the Republican legislature has made clear so far is that they’re keeping cuts to Medicare and Social Security off the table. In January, McCarthy said these programs would not be included in the negotiations, and the GOP House Budget Committee reiterated that they only wanted to strengthen these programs, not cut spending.
The lack of a concrete plan from Republicans, however, has Democrats questioning whether Medicare and Social Security will truly remain unscathed if a debt ceiling deal takes shape.
“They say Social Security and Medicare are off the table, but until the American people see a plan, they can’t take the speaker at his word,” Schumer said Thursday.
The GOP House Budget Committee last month presented a list of 10 main areas flagged for spending cuts, including ending student debt relief, imposing work requirements for programs like SNAP and cutting environmental programs.
And former President Donald Trump’s budget chief, Russell Vought, also appears to be influencing the debt ceiling talks. The Washington Post reported that Vought presented his 104-page budget, titled “A Commitment to End Woke and Weaponized Government,” to some GOP lawmakers, which includes proposed budget cuts for each federal agency.
His proposed cuts include ending the federal student loan program, cutting housing funding and ending CDC programs designed to help prevent chronic disease.
What happens next
If nothing happens and nobody blinks, the country faces the biggest financial crisis in its history.
If the US defaults on its debt, the stock market would collapse. Millions would likely lose their jobs. US Treasuries, the key assets in global finance, would suddenly be thrown into chaos.
“We would only trigger a global financial crisis. What happens after that? Nobody knows,” previously said Zachary D. Carter, author of The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. insiders said.
“I’m just worried that we’re going to see the same dynamic game over and over again, meaning that every time it reaches a crisis point, politicians claim to care a lot – usually as an excuse to force the other side to do it a kind of submission,” Rohan Gray, an assistant professor at Willamette University College of Law, told Insider. “And the minute that flash moment is over, we go back to that same dynamic afterwards.”
“It’s a chicken game,” Gray added. “And a chicken game requires two people to do the same thing, which is drive opposite each other on a freeway, go a hundred miles an hour and say, ‘Can you believe this guy won’t go off the road?'”
Some economists — and even lawmakers — have offered a silly-sounding alternative to circumvent the debt ceiling crisis entirely: minting a trillion-dollar platinum coin. This idea derives from a loophole in the coinage jurisdiction of the Treasury. Technically, the Treasury can mint platinum coins of any denomination. One school of thought believes that Yellen should simply mint a trillion-dollar platinum coin and then deposit it with the Fed to eliminate any concerns about a default.
“It should have been time for the coin a month ago,” Gray said. When it comes to criticism that the coin is a media stunt, “it’s a media stunt to get attention – because they haven’t paid attention until now”.
However, Yellen continues to oppose the coin and its viability, making it appear that Democrats and Republicans will have to find a different way forward.
For now, Biden’s government has insisted that raising the debt ceiling should be bipartisan and non-negotiable. Republicans raised the cap three times under Trump, and the president argued there was no reason this time should be any different.
“They paid America’s bills then, so why don’t they pay them now?” Biden said during Wednesday’s remarks. “Well, they didn’t throw the country into crisis then, and they shouldn’t be doing it now. If they didn’t inflict pain on the American people then, why would they do it now?”
“Well, the answer is quite simple: politics,” Biden continued. “I will not be part of it. You know, they have nothing to do with playing politics with people’s lives and our economy. We will not allow them to work with all of you either.”
