Key Takeaways:
- The U.S. Government has reached its debt ceiling the Treasury Department has warned
- The Biden Administration could lead the U.S. to its first intentional default in its history
- The Republicans, who now control the House, have refused to lift the debt ceiling without harsh concessions from the Democrats
YEREVAN (CoinChapter.com) — The United States could be on the verge of default. According to reports, the US Government has reached its debt ceiling of $31.4 trillion, causing a massive political storm between the Biden Administration and the Republicans. The Treasury Department has already announced it will start taking extraordinary measures to keep the government paying its bills to avoid a catastrophic default.
It seems the billions of dollars that Joe Biden poured into Ukraine have come back to bite him.
The debt ceiling is the amount of money the US Congress allows the Treasury to borrow to pay its bills. Treasury Department’s Secretary Janet Yellen has already written a letter to House Speaker Kevin McCarthy, soliciting his support to avoid the crisis.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,”
she wrote.
By June, the US Government could run out of money amid Washington’s wakening fiscal health. The Biden Administration intends to ask Congress to either increase the debt ceiling (something that has been repeatedly done before) or remove the cap altogether.
However, with the Republicans now controlling the House with a slim majority, that will not come without a cost. Joe Biden & Co. must be ready to make certain concession to the Republicans if they want the ceiling lifted.
Conversely, if the United States defaults on its debt, it will have a massive impact not only on the US Economy but the entire world.
Republicans are against increasing the debt ceiling
Already furious at the Biden Administration’s generous funding of Ukraine, the Republicans seem adamant not to cut it any slack. The looming crisis has now provided them with a new opportunity to stand up to the Democrats.
Because they now hold a majority in the house, the US Government is essentially left at their mercy. However, it seems that the Republicans do not want to increase the debt ceiling. Not for free, at least.
House Speaker Kevin McCarthy, who barely won the leadership of the house after several failed attempts, has already made it clear that a clean debt ceiling increase is “totally off the table”. However, he is open to raising the limit if the US Government agrees to cut down spending and prioritize debt payments. But he has made clear that he will not budge “unless Congress slashes at least $130 billion in federal spending next fiscal year or addresses broader fiscal reforms that tackle the ballooning debt.”
Meanwhile, the White House is sticking to its guns. The Biden Administration has announced that it will not offer any concessions or negotiate on raising the debt ceiling.
“There will be no negotiations over the debt ceiling. Congress must address this without conditions as they did three times under Donald Trump,”
White House deputy press secretary Olivia Dalton said.
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Kevin McCarthy faces first big challenge as speaker
Kevin McCarthy’s stint as House Speaker is off to a rough start. After barely managing to secure the top post for himself, he now has to not only stand up to Democrats but also please rebels within the Republican ranks.
Even if McCarthy wants to, he cannot concede to the Democrats as it is unlikely he will manage to bring some Republican hardliners to the table. He will be careful not to be pushy. Any member can now call for a motion to vacate the speaker’s chair, one of several concessions he made to gain their support to become Speaker.
Some of his colleagues, who called themselves the “Freedom Caucus”, supported him only under the condition that he wouldn’t move to lift the debt ceiling without corresponding cuts in government spending.
But more than his colleagues, McCarthy has to worry about backlash from the American people. If he ensures a standoff and the Government does eventually default, several citizens could blame him no less than the Government for it.
Defaulting could directly impact several households. The Biden Administration will be forced to cut federal benefits such as Social Security, Medicare, and Medicaid. Moreover, many families will lose their federal aid related to nutrition, veterans, and housing.
This will automatically cause a recession, which will, in turn, result in job cuts and unemployment. All these will leave the American people angry and they would want to know why McCarthy did not prioritize them over his political ambitions.
So will the Republicans and the Biden Administration find a common ground to prevent a default? It’s too early to tell.
