U.S. Debt Limit Reached: Prepare for Lengthy Government Shutdown
President Biden will not agree to either a national sales tax or cuts to Social Security, Medicare, or Medicaid. The far-right members of House Speaker Kevin McCarthy's (R-CA) Republican caucus are dug in and won't let him bring a clean debt ceiling raise to the House floor. The danger of the default is the greatest it's been in a decade.
House Speaker Kevin McCarthy (R-CA) wants to sit down with President Biden and begin talks immediately on raising the debt ceiling, an opportunity that Republicans, after running up the Federal Debt by almost $8 Trillion during the Trump administration's four years. McCarthy and his far-right comrades want to use the debt ceiling as leverage in their effort to slash federal spending. According to a statement by McCarthy …
"I would like to sit down with all the leaders and especially the president and start having discussions,"
As Treasury Secretary Janet Yellen warned last week, the federal government has reached its borrowing limit today, forcing the Treasury to take "extraordinary measures" to provide liquidity roughly through June. McCarthy said he wants to start talks before the cash crunch gets too close. He asks…
"Who wants to put the nation through some type of threat at the last minute with the debt ceiling? Nobody wants to do that,"
The White House, however, made it clear that President Joe Biden – who called Republicans "fiscally demented" in comments over this past weekend — has no plans to negotiate on the issue, and is demanding instead a clean vote to raise the debt limit. He insists that budget negotiations must be dealt with separately from the need boost in the debt ceiling.
White House Press Secretary Karine Jean-Pierre reiterated the administration's position on the matter this past Tuesday…
"As President Biden has made clear, Congress must deal with the debt limit and must do so without conditions," she said. "But congressional Republicans are threatening to hold the nation's full faith and credit, a mandate of the Constitution, hostage to their demands to cut Social Security, to cut Medicare and to cut Medicaid — brinksmanship that threatens the global economy."
McCarthy rejected the White House position, saying he didn't see why you would… "continue the past behavior" that produced the current fiscal situation. Instead, he said he wants to negotiate with Democrats to "set a budget, set a path to get us to a balanced budget and let's start paying this debt off."
McCarthy insists that the country's main social welfare programs were fair game for negotiations as far as he is concerned, along with discretionary spending…
"Let's sit down and find a place where we can protect Medicare and Social Security for future generations; let's put our house in order in how we are going to spend,"
According to the Washington Post, House Republicans are reportedly working on a contingency plan for what to do if the standoff goes badly and the U.S. veers toward default.
The Republican plan is expected to call on the Treasury Department to meet certain obligations — with the must-pay group including Treasury instruments, Social Security, Medicare, and the military — while leaving other bills unpaid.
The problem with that plan is that it's not clear whether U.S. Treasury has the ability to prioritize its payments in that way legally or that Republicans could force it to do so.
In addition, skipping some payments while making others would surely cause major economic disruptions in the economy and could send the world's financial markets into the worst decline since the 2008-2009 financial crises, for which the Republicans take the blame for triggering. A senior Democratic aide told The Washington Post's Jeff Stein, Leigh Ann Caldwell, and Theodoric Meyer.
"Any plan to pay bondholders but not fund school lunches or the FAA or food safety or XYZ is just target practice for us,"
The White House's Jean-Pierre called the contingency plan "a recipe for economic catastrophe" while previewing a line of attack that would likely get a lot of use in the event of a partial default…
"Their latest idea is that rather than paying its bills, the United States should make payments to wealthy bondholders, including foreign investors, and stop payments for border security, food safety, nursing homes, school lunches, the FAA, drug enforcement, and other programs Americans rely on every single day.
"This so-called 'privatization' scheme makes Republicans' priorities pretty clear — crystal clear, if I may add. They want to put wealthy bondholders over ordinary Americans who want safe food, safe skies, safe communities, and secure borders."
Politico's Olivia Beavers, Caitlin Emma, and Zachary Warmbrodt warned Tuesday…
"The Biden administration and House Republicans are heading toward an initial Thursday debt ceiling deadline without even a hint of an endgame, ensuring a months-long standoff that's poised to rattle financial markets amid worries about a recession this year."
Meanwhile, the Wall Street Journal Editorial Board, a Murdoch publication and deeply conservative group sympathetic to the drive to cut spending, warned Republicans about the difficulties they may face in the coming weeks...
"The first rule of political negotiation is never take a hostage you're not prepared to shoot.”. “That’s advice for House Republicans to contemplate as they gear up for a high-stakes showdown with President Biden over raising the federal borrowing limit.”
This warning by the Wall Street Journal is especially prescient given that McCarthy and the far-right members of his caucus intend to take the full faith and credit hostage in order to cut Social Security, Medicare, and Medicaid while they have cut the funding of the Internal Revenue Service to collect taxes.
President Biden and the Democrat members of the House will attempt to the small group of moderate GOP members of Congress in districts that Biden won in 2020 to join in a "discharge petition," a legislative maneuver in the House that would allow a group of Democrats and Republicans to go around Speaker McCarthy to raise the debt ceiling.
If the effort to bring and raise the debt ceiling fails to be cured by a "discharge petition," the Republican unwillingness to raise the debt ceiling could literally trigger a worldwide financial meltdown.
In a debt default, U.S. banks, financial institutions, and stock markets would be forced to close their doors, and this would be catastrophic for the U.S. economy and its credit rating.
McCarthy faces the prospect of his fiscal blackmail to send major stock indexes into a spirally sell-off of 30%, 40% even 60% in short order, triggering a global financial market meltdown. Interest rates would spiral up to 10%, 20%, and 30% in a blink of an eye. The food lines we would then see would be tens of miles long, making those that formed during the pandemic look tiny.