WASHINGTON (AP) — The federal government is on track to max out its $31.4 trillion borrowing authority this month, kicking off an anticipated runoff between President Joe Biden and a bipartisan House Republican majority that will test their mettle. To navigate a divided Washington, with a fragile global economy at stake.
When the government runs up against the limit – which could happen any time in the next few weeks or so – the Treasury Department will not be able to issue new debt without action from Congress. The department wants to deploy so-called “extraordinary measures” to keep the government running. But when those measures expire, likely in midsummer, the government could be at risk of default unless lawmakers and the president agree to lift the cap on the U.S. government’s ability to borrow.
The expected forecast on the debt limit would be a stark display of the new reality for Biden and the Democrats, who have had one-party control of Washington for the past two years. It would herald challenges in achieving even the modest ambitions Democrats bring to the task of lawmaking in a divided Capitol.
The White House has insisted it will not allow the nation’s credit to be held captive by the demands of powerful new GOP lawmakers. But new House Speaker Kevin McCarthy’s concessions on his arduous path to securing the job raise questions about whether he has the ability to cut the kind of deal to resolve the dispute.
McCarthy, who secured his position only after 15 rounds of voting and major compromises with hardline members of his caucus, has said his fellow Republicans will only agree to raise the debt ceiling in exchange for unspecified spending cuts. And a new rule that allows any lawmaker to trigger a vote to remove McCarthy could turn even the most urgent vote into a serious one.
McCarthy said he has spoken with Biden about the upcoming debt ceiling and told the president he “shouldn’t get to that,” meaning a federal government shutdown over spending levels.
“This is our moment to change our behavior,” McCarthy said Tuesday on Fox’s “Hannity.”
But the new speaker stopped short of saying that Republicans now in charge of the House would refuse to pass the annual spending bills needed to fund the government, as they did in the face of the debt ceiling in Congress more than a decade ago.
“We’re going to scrutinize every dollar we spend,” McCarthy said.
Bets are treacherous. Past forecasts have suggested a default could immediately bury the country in a deep recession at a time of slowing global growth, as the US and much of the rest of the world suffer from high inflation due to the pandemic and Russia’s invasion of Ukraine.
The White House has rejected executive measures to avoid a default.
“Congress will have to raise the debt limit unconditionally, and it’s that simple,” White House press secretary Karine Jean-Pierre said recently. “Trying to exploit the debt ceiling will not work. No hostages will be taken.’
On Capitol Hill, Texas Republican Rep. Chip Roy, one of McCarthy’s backers and a vocal critic of government spending, would not rule out trying to oust McCarthy if he doesn’t follow through on spending cuts. increase the debt limit.
“We will use the tools of the House to enforce the terms of the agreement,” Roy told CNN on Sunday.
Rep. Bob Good, R-Va., said in an interview on Fox News on Monday that the debt limit will be a “real test” for conservatives. Republicans need to start “seizing the power to do what you have to do,” he said. Goode fought McCarthy’s request to be speaker until the final vote, when he answered “now.”
Debt ceiling debate is a form of political theater — encouraging lawmakers to engage in brinkmanship in the name of fiscal responsibility — though past revelations have done little to meaningfully alter the long-term rise in the federal debt.
House Republican leaders liken the debt ceiling to the credit card limit, “so you don’t set the mechanism in motion,” in the words of House Speaker Steve Scalise of Louisiana.
“We’re going to deal with it and I think the American people called us to deal with it,” Scalise said.
Any effort to compromise with House Republicans could force Biden to bend to his priorities, whether funding the IRS, making sure the wealthiest Americans pay what they owe, or domestic programs for children and the poor.
It is difficult to determine when the government will reach the debt ceiling because payments and receipts change from day to day, especially with the April income tax filing deadline. The current balance sheet suggests that the debt ceiling could be reached this week or even in March.
When the Treasury takes extraordinary measures to keep the government running, it can freeze contributions to pension funds and borrow from the accounts to manage exchange rate swings, freeing up cash to meet its other obligations.
The Treasury first used these measures in 1985 and has used them at least 16 times, according to the fiscal watchdog Committee for a Responsible Federal Budget. But the unusual measures only work for so long, and would likely run out — and put the U.S. at risk for recovery — around summer.
If the government defaults, one might expect financial markets to collapse. Several million workers could be laid off. The world may feel the effects of the crisis for years to come. Moody’s Analytics called that risk “cataclysmic” in a 2021 forecast ahead of the previous debt ceiling hike, suggesting the resulting chaos would be due to government dysfunction rather than the underlying health of the US economy.
“Debt limit negotiations are always protracted and almost always contentious, and political trends seem likely to exacerbate those trends and create a volatile situation,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, which The government foresees the so-called X-date when it exhausts its extraordinary measures.
Akabas told The Associated Press that the X-date has “likely moved forward” since the third quarter of this year due to rising interest rates and the suspension of student loan repayments recently extended by the Biden administration. A more precise date will be available when the Congressional Budget Office updates its projections later this month.
In any case, the members of the legislature know what risks they are taking with the lives of people all over the country by having this conflict. Economists have warned them many times.
A 2013 Treasury report discussed the state of the debt ceiling in 2011, when Republicans had also just won a majority in the House. He explained how impasses contribute to long-term scarring of financial markets, noting that business and household confidence had fallen to levels seen only in recessions.
“It took months for confidence to be restored, even though, after all, there was no default,” the report said.
Associated Press writers Kevin Freking, Zeke Miller and Lisa Mascaro contributed to this report.
