The top Republican Senate leader on Wednesday proposed a truce to squabbling in Congress that risks pushing the United States into what the White House and industry leaders warn would be “catastrophic” debt default.
Senate Minority Leader Mitch McConnell said Republicans would allow Democrats to vote for temporarily lifting the debt ceiling, which is about to expire, triggering a government default, “into December.”
This would give Democrats time to find a longer-term solution and will “protect the American people from a near-term Democrat-created crisis,” McConnell said.
McConnell’s decision to create a little breathing room came right after President Joe Biden, Treasury Secretary Janet Yellen and a string of heavyweight CEOs lined up at a White House roundtable to warn of “catastrophic” fallout.
The debt ceiling is a legal limit on the ever-ballooning US national debt. As the maximum is reached over the years, Congress has routinely and usually without much controversy voted to extend the ceiling.
This time, Republicans have taken a stand, saying they will not vote for more debt in protest at Biden’s plans for trillions of dollars in additional spending on infrastructure and the social safety net.
Democrats say the Republicans are merely trying to derail Biden’s domestic agenda and cause chaos, which they would then blame on him ahead of next year’s congressional elections.
Yellen repeated her forecast that the US government will essentially run out of cash after October 18 if the ceiling is not relaxed in time.
“This would be a catastrophic outcome,” she said.
The “financial crisis” would prompt an end to the post-Covid US economic recovery, “devastating” cuts to social payments and government salaries, and “likely” a recession, she said.
Biden called the debt ceiling a “meteor headed to crash into our economy,” while Citi Bank CEO Jane Fraser said Congress was “playing with fire.”
For JPMorgan Chase CEO Jamie Dimon, the risks go even further, ranging from “complete catastrophe” for the global economy to a threat to “world peace.”
“Our Republican friends need to stop playing Russian Roulette with the US economy,” Biden said.
While Democrats have a razor thin majority in the 100-seat Senate, with 50 members and the vice presidential tie break, Republicans use a procedural rule to require a majority of 60 votes on most bills. That leaves Democrats helpless to move forward without significant Republican backing.
“Republican obstruction on the debt ceiling over the last few weeks has been reckless, it’s been irresponsible,” Chuck Schumer, the Senate’s Democratic leader, told lawmakers.
– Global fallout –
US Treasury debt is considered the world’s benchmark safe asset and its interest rates are the basis for the pricing of financial products and transactions across the planet.
Even the threat of a default can spook financial markets and damage the economy. A first-ever default would likely be felt around the globe.
“As a result, tens of millions of people would quickly, even overnight in some cases, face the prospect of losing the regular Federal payments that help them to make ends meet,” the White House’s Council of Economic Advisers tweeted.
The government’s ability to provide for national defense, the Covid-19 pandemic response and day-to-day services would also likely be severely impeded, the council warned.
As Biden sought to stress in his televised roundtable, social security payments would take an immediate hit, impacting tens of millions of ordinary people, including the country’s 50 million elderly. Among the invitees was Jo Ann Jenkins, CEO of the AARP — the politically influential association for retirees.
Defense Secretary Lloyd Austin warned he could lose the authority to ensure that service members, civilians, or contractors were paid, while benefits for nearly three million veterans would be imperiled.
“A default risks undermining the international reputation of the United States as a reliable and trustworthy economic and national security partner,” he said in a statement.
The feuding appears not to be playing well with ordinary Americans, with both sides in Washington viewed negatively in a new Gallup poll showing 55 percent unfavorability for Democrats and 56 percent for Republicans.
“Party favorable ratings often provide clues as to how upcoming elections might go and will be an important indicator to watch as the 2022 midterm elections draw near,” Gallup said.
