The United States hit the debt ceiling set by Congress on Thursday, forcing the Treasury Department to begin taking extraordinary measures to keep government open and increasing pressure on Capitol Hill to avoid a catastrophic default.
The battle lines for the high-stakes fight have already been drawn. Hardline Republicans, who wield enormous influence in the House because of a slim party majority, have demanded that lifting the debt limit be tied to spending cuts. The White House responded that it will not offer any concessions or negotiate to raise the debt ceiling. And with the solution to the debt ceiling drama squarely in the hands of lawmakers, fears are growing that partisan brinksmanship could result in the nation defaulting on its debt for the first time in history, or coming perilously close to doing so. .
The director of the National Economic Council, Brian Deese, repeatedly urged Congress on Thursday to meet the obligations of the United States by raising the debt limit, warning against the “economic chaos” that could ensue if Congress fails to do so.
“This is about economic stability versus economic chaos,” Deese told Kaitlan Collins on “CNN This Morning,” calling it a “basic and fundamental obligation” of Congress.
He added: “Even the mere specter of the United States not meeting its obligations hurts the economy.”
The announcement that the US has reached its debt ceiling follows Yellen’s warning last week about the approaching debt limit, urging lawmakers to “act promptly to protect the faith and credit of USA”. Extraordinary measures will buy Congress some time: Yellen said the administration is unlikely to run out of cash and emergency maneuvers before early June, though she noted there is “considerable uncertainty” surrounding that forecast.
But his letter has failed to spark a bipartisan discussion thus far. Instead, both Republicans and Democrats reaffirmed their tough positions over the past week.
House Speaker Kevin McCarthy must walk a fine line as any member can move to vacate the speaker’s chair, one of several concessions he made to get the top job after 15 rounds. voting earlier this month.
For now, he is leaning towards using the debt ceiling crisis to cut spending and balance the US budget. On Tuesday, McCarthy rejected Democratic calls for a clean increase in the debt ceiling without any strings attached, something Congress has done time and time again, even under then-President Donald Trump. The speaker told reporters on Capitol Hill that the Biden administration should start negotiating before this summer, when the United States could default.
“Why don’t we sit down and change this behavior to put ourselves in a stronger fiscal position?” McCarthy said.
President Joe Biden and McCarthy have yet to speak Thursday about the debt limit, according to an official familiar with the dynamics.
Far-right Republican Rep. Andy Biggs went even further in a tweet on Tuesday, writing: “We cannot raise the debt ceiling. The Democrats have carelessly spent our taxpayers’ money and devalued our currency. They have made their bed, so they must lie in it.”
The White House on Wednesday criticized the Arizona Republican’s “astonishing and unacceptable position” and once again rejected calls to cut spending as part of a debt-ceiling deal.
While there were no meetings with congressional leaders to announce at this time, White House press secretary Karine Jean-Pierre told reporters that the administration has been reaching out “to all members, from both sides from the corridor”, but “there will be no negotiations on the debt ceiling, we will not do it, it is their constitutional duty”.
The debt ceiling, which is the maximum amount the federal government can borrow to finance obligations that lawmakers and presidents have already approved, was last raised in December 2021 to $31.4 trillion. Created more than a century ago, it has become a way for Congress to restrict loan growth, turning it into political football in recent decades.
The increase in the ceiling does not authorize new spending commitments.
Treasury will begin using two extraordinary measures to allow it to temporarily continue funding the operations of the federal government, Yellen wrote Thursday. It’s mostly behind-the-scenes accounting maneuvers.
The agency plans to begin selling existing investments and suspend rollovers from the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. Likewise, it will suspend the reinvestment of a fund of government securities of the Savings Plan of the Retirement System of Federal Employees.
These funds are invested in special issue Treasury securities, which count against the borrowing limit. Treasury’s actions would reduce the amount of outstanding debt subject to the cap and temporarily allow it to continue paying government bills on time and in full.
No retirees will be affected and the funds will be completed once the doldrums end.
As part of his concessions, McCarthy promised to approve a proposal by the end of March that tells the Treasury which payments should be prioritized if the debt limit is exceeded, Republican Rep. Chip Roy confirmed to CNN last week.
Roy, a Texas Republican who is one of the key players in the McCarthy presidential showdown, cautioned that the contours of the proposal are still being worked out, noting that there are several different versions of a payment prioritization plan circulating. within the House Republican Party.
But choosing to pay one set of obligations over another could create legal challenges, as well as political and ethical dilemmas. For example, lawmakers would have to decide what to pay first: the monthly Social Security payments to the tens of millions of senior citizens and disabled Americans, the wages of federal and military workers, or the interest on the American debt to a multitude of investors, many of them foreigners.