With the countdown to a possible default by the U.S. government fast approaching, friction between President Joe Biden and House Republicans has sounded alarm bells as to whether the U.S. can avert a potential economic crisis. It has been.
In a letter to congressional leaders on Thursday, the Treasury Department said it had begun taking “special measures” because the government opposes its $38.381 trillion statutory borrowing capacity. The artificially imposed ceiling, the debt ceiling, has been raised about 80 times since the 1960s.
So far the market has been calm given that the government can temporarily rely on adjustments in accounting to keep operating and the threat to the economy is months away. Even many worried analysts assume there will be a deal.
But this particular moment has more trouble than past debt limit brushes because of big differences between Mr. Biden and new House Speaker Kevin McCarthy, who presides over the Republican caucuses. There seems to be
These differences increase the risk that governments will not meet their obligations for political reasons. It could destabilize financial markets and plunge the world’s largest economy into a completely preventable recession.
Biden and California Republican McCarthy have months to reach a deal as the Treasury Department imposes “special measures” to keep the government running until at least June. , years of growing partisan animosity have led to a series of conflicting demands that jeopardize the ability of legislators to cooperate on their basic duties.
Biden has insisted on raising the debt ceiling “cleanly” so that existing financial commitments can be maintained, and has even refused to start negotiations with Republicans. After a tough start to a new congress that requires 15 votes to elect McCarthy as chairman, how much he wants to cut, fellow Republicans support some kind of deal It is unclear whether
White House press secretary Karine Jean-Pierre was asked twice Wednesday if there was evidence House Republicans could guarantee the government would avoid a default. He didn’t say whether he saw any signs that he wasn’t.
“We’re not going to negotiate on that,” said Jean-Pierre. “They should feel responsible.”
McCarthy said Biden needs to recognize the political realities that come with a divided government. The speaker equated the debt ceiling with credit on his card, and Republican Donald, who signed a bipartisan debt ceiling suspension in 2019, called for a level of fiscal restraint that did not occur under President Trump. I’m here.
“Why are you creating a crisis over this?” McCarthy said this week. “I mean, we have a Republican House of Representatives and a Democratic Senate. And we have a president there. I think it’s arrogant to say, ‘Oh, we’re not going to negotiate almost anything.’ come.”
Any deal must go through the Democratic-run Senate. Many Democratic lawmakers are skeptical about their ability to work with Republicans along the lines of the Make America Great Again movement started by Trump. Allegations of falsehood that contributed to the January 6, 2016 riot at the U.S. Capitol.
Senate Majority Leader Chuck Schumer said, “There should be no political dichotomy on the debt ceiling.” It’s futile to try.”
“Special measures” in progress
To keep the government running, the Treasury Department on Thursday carried out a series of accounting maneuvers that withheld contributions and reimbursement of investments in retirement and health care funds for civil servants, giving the government enough finances to handle the day. gave me the leeway. -Daily costs up to approximately June.
It is unclear what would happen if these measures were exhausted without a debt relief agreement. The U.S. Treasury says a prolonged default could be devastating if confidence in the cornerstone of the global economy is lost, leading to market crashes and panic-driven job cuts. points out.
Analysts at Bank of America warned in a report last week that there was “substantial uncertainty as to the rate and magnitude of damage to the U.S. economy.”
The underlying challenge is that if a government lacks the capacity to issue debt, it must balance its books on a daily basis. If the government cannot issue bonds, it will have to impose cuts of the same size each year on his 5% of the total US economy. Analysts say their base case is for the US to avoid a default.
Still, if past debt ceiling confrontations, such as those that occurred in 2011, are any clue, Washington has made little progress until the “X-date,” the deadline by which the Treasury Department’s “temporary measures” will be decided. , may be in a nervous pause. Exhausted.
Unlike the 2011 showdown, the Federal Reserve is aggressively raising interest rates and reducing its holdings of Treasuries to keep inflation in check. This means that recession fears are already growing among consumers, businesses and investors.
Biden administration officials have said they will not prioritize payments to bondholders if the country passes the “X-date” without a deal. For years, officials have considered this emergency option, but Treasury officials across the administration say it can’t be done because of the government’s payment system.
Wells Fargo economists said in Thursday’s analysis, “To some extent, the ‘temporary measures’ are backup plans, and once they are exhausted, the next steps are a big question mark.