Chaos? Kumbaya? How the standoff over the US debt limit could end

WASHINGTON: How does this standoff over the debt limit end?
Many scenarios are played out publicly and privately, but no one knows for sure. The possibilities range from kumbaya to economic chaos with many possibilities in between.
So far, neither President Joe Biden nor House Speaker Kevin McCarthy, R-California, is giving ground ahead of talks scheduled for Tuesday. Biden wants to increase the government’s legal borrowing limit by $31.4 trillion, so the federal government can keep paying its bills and the risk of a historic default goes away. McCarthy and other GOP lawmakers want a deal that secures trillions of dollars in spending cuts before signing on to raise the debt ceiling.
Time is running out: the Treasury Department warns that the United States could default as early as June 1 if there is no agreement.
An overview of potential results:
Let’s say we disagree
The president wants to disarm the whole debate by asking Republicans to publicly pledge that the United States will not default. He would then be ready to discuss spending, taxes and other budgetary matters.
He wants assurance from McCarthy that the United States can continue to pay all of its bills with the ability to continue to borrow. The president says he’s ready to have a public debate with GOP lawmakers on the budget, but not with the world’s largest economy held hostage.
“As I’ve always said, we can debate where to cut, how much to spend, how to finally move the tax system where everyone starts paying their fair share,” Biden said. “But not under threat of default.”
It’s unclear how many GOP lawmakers share his definition of default. Some suggest a default would only apply to unpaid debts, while the administration wants to include federal employee salaries, contractor reimbursements and aid for the poor, veterans, schools and others.
Shortly before the House narrowly passed a bill calling for $4.5 trillion in party-determined deficit reduction, McCarthy said the United States would not default. But he still ties that issue directly to spending cuts in a way Biden wants to avoid.
“Tackling debt requires us to come together, find common ground and cut spending,” McCarthy said last month. “Let’s be clear: defaulting on our debt is not an option, but neither is a future with higher taxes.”
Republicans hold on
Congressional Republicans could hold their ground and force the Democrats to waver.
McCarthy has a narrow majority in the House: 222 Republicans, against 213 Democrats.
His debt ceiling bill would reverse discretionary spending to 2022 levels, then place a 1% cap on future increases. The bill would also reverse Biden’s forgiveness of student loan debt, his increased funding for the IRS, and tax incentives created in 2022 to encourage clean energy adoption. These cuts would extend the debt limit to March 31, 2024, or up to an additional $1.5 trillion.
GOP conservatives such as South Carolina Rep. Ralph Norman and others say they won’t support anything less than this bill, which House Republicans passed April 27 with 217 votes.
But Senate Majority Leader Chuck Schumer, DNY, will not let this bill pass through the Senate. Neither did Biden. The question as the deadline approaches is whether the Republicans will stick together and that is making the Democrats give in. There’s also the risk that dissent within the GOP caucus could endanger McCarthy’s presidency, which could then make it even more difficult to strike a deal.
The question is what kind of deal could go through the House, Senate and Oval Office.
Get an extension
Washington loves to put things off – the old “kicking on the road” routine.
Lawmakers may agree to a short-term extension, pushing back the expiration of the debt ceiling to September 30, when a federal budget must also be passed.
This would be consistent with GOP efforts to synchronize the budget debate with the debt limit, while removing the immediate risk of default. This is the option government officials typically discuss in private with the most optimism.
Still, House Minority Leader Hakeem Jeffries tried to throw cold water on that idea in a Sunday interview with NBC News.
“I don’t think the responsible thing to do is kick the box,” Jeffries said, though he prioritized the importance of avoiding a default.
The markets are going crazy
Wall Street could save the day, sort of, by having a meltdown.
Along with economists, Senate Budget Committee Chairman Sheldon Whitehouse, DRI, indicated that a sharp sell-off in the market could force Republicans to retreat. Their donors would howl about impending financial loss and give every lawmaker an incentive to be the hero and save the jobs and retirement savings of millions of Americans.
Joe Brusuelas, chief economist at consultancy RSM US, said in an email on Monday that talk of a possible default was already making it more expensive for investors to buy insurance on US Treasuries. But the panic is largely contained, so far, by the broader stock market that many voters and lawmakers follow.
14th amendment
Biden could play the Constitution card.
The 14th Amendment became part of the Constitution after the Civil War. It states that “the validity of the public debt of the United States, authorized by law, … shall not be in doubt”.
Laurence Tribe, professor emeritus at Harvard University School of Law, wrote in the New York Times on Sunday that Biden can argue he has a constitutional duty to avoid default and therefore can exceed the debt cap. debt to continue spending that Congress has already approved. On Monday, a union of government employees sued Treasury Secretary Janet Yellen and Biden to argue they are constitutionally obligated to disregard the debt limit.
As a former senator, Biden likes to defer to Congress. But when pressed to invoke the 14th Amendment last week, he kept his options open.
“I haven’t gotten there yet,” he told MSNBC.
Sen. James Lankford, R-Okla., Said Biden could not act unilaterally. He told ABC News that the Constitution is “very clear that spending — all of these details about spending and money actually have to go through Congress.”
Hit a coin
It’s one of many creative – and unlikely – solutions floating around the internet. The idea is that the government could mint a $1 trillion platinum coin and use it to avoid default. Basically, there is a loophole in the law that could allow the United States to mint a coin of any denomination if it is platinum.
It has at least one big problem: Yellen ruled out the idea in a January interview with The Wall Street Journal, calling it “something that’s a gimmick.”
This is the scariest possibility.
If there is no deal, the US government could reach its “X date” – the time when it can no longer pay all its bills. The Treasury Department would no longer be able to use accounting strategies to keep government open. If the government were no longer able to borrow, the unpaid bills would increase and the government would default.
But, but, but… not all faults are the same.
The United States could briefly miss some payments, and the risk of things getting worse could push lawmakers to reach a deal. But even a “brief” default would cost the economy 500,000 jobs, according to a White House analysis. A “prolonged” default would cost 8.3 million jobs, according to the analysis, almost as many job losses as there were during the 2008 financial crisis.


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