The U.S. economy could be headed for a crisis manufactured by a handful of House Republicans.
The treasury secretary, Janet Yellen, informed congressional leaders on Thursday that the US has hit its debt ceiling, which limits the amount of money that the government can borrow to pay all of its bills.
Yellen urged Congress to work as quickly as possible to raise the debt ceiling and prevent the US from defaulting on any of its financial obligations, which would have catastrophic consequences.
“It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit,” Yellen warned in a letter sent last week. “Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability.”
The dire language from the nation’s top economic official underscored the urgency of Congress’s task and appeared to represent an attempt to deter any lawmaker from toying with the idea of a default. Some House Republicans have chosen to do so anyway.
Members of the hard-right House Freedom Caucus have already promised to oppose a “clean” debt ceiling increase, meaning a bill that raises the national borrowing limit without any other policy concessions.
“We cannot raise the debt ceiling,” the Arizona congressman Andy Biggs said on Tuesday. “Democrats have carelessly spent our taxpayer money and devalued our currency. They’ve made their bed, so they must lie in it.”
Congresswoman Marjorie Taylor Greene, from Georgia, echoed that sentiment on Wednesday, telling Fox News: “I for one will not sign a clean bill raising the debt limit.”
Setting aside the fact that individual members of Congress do not sign bills, the comments from lawmakers like Greene have intensified concerns over a potential default this summer. As of now, the treasury is deploying “extraordinary” measures to keep paying its bills, but those options may be exhausted as early as June.
The US has never failed to raise or suspend its debt ceiling, so most Americans are probably unfamiliar with the potential consequences of a default. Experts fear that the crisis would force the treasury to essentially choose which of its creditors to pay, and those decisions would carry legal ramifications while financially harming any number of institutions that rely on government funding.
“Doctors in hospitals who provide services to Medicare beneficiaries wouldn’t be getting paid what they’re owed,” said Paul van de Water, senior fellow at Center on Budget and Policy Priorities, a progressive thinktank. “Defense contractors wouldn’t be getting paid in their full amounts. Veterans wouldn’t receive the full benefits to which they’re entitled and on and on and on.”
A failure to address the debt ceiling would simultaneously cause irreparable damage to the reputation of the US treasury, and that recalculation would trickle down to consumers.
If Congress fails to raise the debt ceiling, it would trigger a “risk premium” for any financial transaction benchmarked to the treasury, said Gordon Gray, director of fiscal policy at the center-right thinktank American Action Forum.
“And what’s benchmarked to the treasury? Pretty much every financial instrument that consumers have: your credit card, your mortgage,” Gray said. “Any number of interactions that the public has with financial markets would be affected by this.”
The standoff ended with the passage of the Budget Control Act, which raised the debt ceiling and outlined significant cuts in government spending. Some House Republicans now appear to be hoping for similar spending cuts in exchange for a debt ceiling hike, escalating the risk of a default.
For many economic experts, the looming crisis has sparked grim flashbacks to the 2011 standoff over the debt ceiling. At the time, Republicans had just regained control of the House and found themselves going toe to toe with Barack Obama over the debt ceiling. Republicans were demanding cuts in government spending in exchange for supporting a debt ceiling increase, leading to Democrats’ accusations that they were recklessly endangering the US economy to advance their own political agenda.
Gray was as a policy adviser to former Republican senator Rob Portman when the 2011 crisis unfolded, and he expressed concern that the next debt ceiling fight could bring the US economy even closer to calamity.
“I believe that the risks are heightened now in a way that they have not been certainly since 2011, and very possibly the risks are greater now than they were then,” he said.
The protracted fight over the House speakership earlier this month only heightened Gray’s fears. Kevin McCarthy was elected speaker on the 15th ballot, following a days-long revolt from 20 members of the House Republican conference.
“The individuals involved in that episode are the same folks who are signaling a disinclination to increase the debt limit.”
“They couldn’t agree that the sky was blue for a week,” Gray said.
McCarthy has indicated his interest in negotiating with the White House over a debt ceiling bill, downplaying concerns over a potential default.
“We don’t want to put any fiscal problems on our economy and we won’t,” he said last week. “But fiscal problems would be continuing to do business as usual.”
So far, Joe Biden has shown no willingness to entertain the idea of cutting government spending in exchange for raising the debt ceiling.
“We are not going to be negotiating over the debt ceiling,” the White House press secretary, Karine Jean-Pierre, said on Tuesday. “This should not be a political football. And we should do it without conditions.”
The demands from House Republicans strike Democrats as particularly outrageous because of their own bipartisan approach to the debt ceiling in the past. During Donald Trump’s presidency, Democrats worked with Republicans to suspend the debt ceiling three times. At the time, congressional Republicans made no attempt to lower government spending while addressing the debt ceiling.
During Trump’s presidency, Republicans took a seemingly cavalier attitude when it came to reducing government debt. In 2017, Republicans passed the Tax Cuts and Jobs Act, even after the Congressional Budget Office projected that the legislation would increase the federal deficit by nearly $1.5tn over the following decade.
“Clearly the approach that is taken seems to vary depending upon the political climate of the moment,” Van de Water said.
As of now, it remains unclear how the latest debt ceiling standoff will resolve itself. The White House and the holdout Republican lawmakers have only reiterated their demands, and the clock is ticking to avoid severe economic tumult that could be felt worldwide.
“Something’s got to give. Something’s going to give,” Gray said. “My hope is that it’s not the financial markets first.”