The US will soon exhaust its debt and start a political battle – Orange County Register


WASHINGTON — The federal government is on track to exhaust its $31.4 trillion borrowing authority later this month, kicking the clock off with an expected standoff between President Joe Biden and the incoming Republican majority in the House of Representatives, who won the Will test both parties’ ability to navigate a divided Washington, with the fragile global economy at stake.

Once the government bumps into the ceiling — it could happen anytime in the next few weeks or longer — the Treasury Department will be unable to issue new debt without congressional action. The ministry plans to take so-called “extraordinary measures” to keep the government running. But once those measures expire, likely by mid-summer, the government could default unless lawmakers and the president agree to lift the US government’s borrowing capacity limit.

The expected showdown over the debt ceiling would be a stark illustration of the new reality for Biden and his Democrats, who have enjoyed one-party control of Washington for the past two years. It would foreshadow the challenges ahead of achieving even the modest ambitions Democrats bring to the task of legislation 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 newly empowered GOP lawmakers. But the concessions made by new House Speaker Kevin McCarthy on his arduous journey to securing the job raise questions about his ability to strike any deal to resolve a standoff.

McCarthy, who secured his post after 15 rounds of voting and major compromises with uncompromising members of his faction, said his Republican compatriots would only agree to a debt ceiling hike in exchange for unspecified amounts of spending cuts. And a new rule allowing any lawmaker to trigger a vote for McCarthy’s impeachment could make even the most urgent vote a tricky one.

McCarthy said he spoke to Biden about the upcoming debt ceiling and told the president “it doesn’t have to come to that” — meaning closing the federal government on spending levels.

“This is our moment to change behavior,” McCarthy said on Fox News Channel’s “Hannity” on Tuesday.

But the new speaker stopped by saying that Republicans, who now lead the House of Representatives, would go so far as to refuse to pass the annual spending bills needed to fund the government, as they did more than one ago decade during an earlier congressional debt ceiling showdown.

“We’re going to look at every single dollar spent,” McCarthy said.

The stakes are treacherous. Previous forecasts suggest that a default could immediately bury the country in a deep recession, at a moment when global growth is slowing as the US and much of the world falter due to the coronavirus pandemic and Russia’s invasion Ukraine are facing high inflation.

The White House has ruled out executive action to avert a default.

“Congress is going to have to raise the debt limit with no — no – strings attached, and it’s as simple as that,” White House press secretary Karine Jean-Pierre said recently. “Attempts to leverage the debt ceiling will not work. There will be no hostage situations.”

On Capitol Hill, Republican Rep. Chip Roy of Texas, one of McCarthy’s holdouts and an outspoken critic of government spending, would not rule out ousting McCarthy if he fails to live up to his promise to call for spending cuts and a raising of the debt ceiling.

“We will use the tools of the House of Representatives to enforce the terms of the agreement,” Roy told CNN on Sunday.

Rep. Bob Good, R-Va., said Monday in a Fox News interview that the debt limit will be “the real test” for conservatives. Republicans need to start “using power to get what you need to get,” he said. Good fought McCarthy’s offer to be speaker until the final vote, when he replied “present.”

The debt ceiling debate is a form of political theater — encouraging lawmakers to engage in risky ways in the name of fiscal responsibility — though past showdowns have done little to meaningfully alter the long-run rise in government debt.

Republican leaders in the House of Representatives are comparing the debt ceiling to a credit card limit and are pledging to “put in place mechanisms so that you don’t keep maxing yourself out,” as Louisiana House Majority Leader Steve Scalise puts it.

“We’re going to face that, and I think the American people called on us to face that,” Scalise said.

Republican Sen. Rick Scott of Florida referred to his 2021 amendment proposal to the Republican Senate Conference, which commits to raising the debt ceiling only if it also secures spending reform.

“I will fight with any means at my disposal to enforce this rule, which every Republican in the Senate has approved,” Scott said. “A day of reckoning is coming.”

Any attempt to compromise with House Republicans could force Biden to bow to his own priorities, whether it’s funding the IRS to ensure wealthier Americans pay what they owe, or domestic programs for children and the poor.

It’s hard to pinpoint the date when the government will reach its debt ceiling as payments and receipts vary from day to day, especially with the April income tax filing deadline. The current balance sheet suggests that the debt ceiling could be reached as early as this week or as late as March.

If the Treasury takes extraordinary measures to keep the government afloat, it can stop contributing to pension funds and borrow from accounts to deal with changes in exchange rates, freeing up cash to meet its other obligations.

The Treasury Department first applied these measures in 1985 and has applied them at least 16 times since then, according to the Committee on Federal Budget Responsibility, a financial watchdog. But the extraordinary measures only work for so long and would likely expire sometime in the summer – leaving the US at risk of default.

Should the government become insolvent, a collapse of the financial markets could be expected. Several million workers could be laid off. The world could feel the aftershocks of the crisis for years to come. Moody’s Analytics called this risk “catastrophic” in a forecast for 2021 ahead of the previous debt ceiling hike, suggesting the resulting chaos would stem from government dysfunction rather than the underlying health of the US economy.

“Debt limit negotiations are always lengthy and almost always contentious, and policy trends seem likely to exacerbate these tendencies and create a volatile situation,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, forecasting the so-called X-date , on which the government exhausts its extraordinary measures.

Akabas told The Associated Press that the X-date was “probably brought forward” due to rising interest rates and a recent Biden administration-extended pause in student loan repayments. A more precise date will be announced when the Congressional Budget Office updates its forecast later this month.

In any case, lawmakers know the risks they are taking with this dispute on the livelihoods of people across the country. Economists have often warned them.

A 2013 Treasury Department report referred to the debt ceiling impasse in 2011, just as Republicans had also just won a majority in the House of Representatives. It outlined how impasses contribute to long-lasting scars in financial markets, noting that business and household confidence have plummeted to levels typically seen only during recessions.

“It took months for confidence to recover, although ultimately there was no default,” the report said.

Associated Press contributors Kevin Freking, Zeke Miller, and Lisa Mascaro contributed to this report. The US will soon exhaust its debt and start a political battle – Orange County Register

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