Biden and McCarthy reach tentative agreement to raise debt ceiling, avoiding US default
President Joe Biden and House Speaker Kevin McCarthy came to a tentative agreement over the weekend to raise the debt ceiling, ending a three-month-long standoff that threatened to trigger a US default.[0] The deal was reached just days before the hard June 1 default deadline, with Treasury Secretary Janet Yellen warning that the country would run out of funds by June 5. The agreement calls for increasing the ceiling for federal borrowing so that no further hikes are needed until after the 2024 elections.[1] In April, the House controlled by Republicans approved a bill that would have increased the federal debt ceiling for a single year.[1]
The topic of raising or eliminating the ceiling has sparked intense debate among policymakers. Certain lawmakers who are opposed to government debt have attempted to implement spending cuts by using negotiations regarding the limit. The issue has caused congressional brinkmanship, which has resulted in disruption such as government shutdowns and the looming threat of default. This danger has the potential to push the economy into crisis.[2] Economists are cautioning about the catastrophic outcomes that may arise if the Treasury Department fails to pay the country's debts, as the issue is put back on the table in 2023 during President Joe Biden's term and with a Republican-controlled House of Representatives.[2]
The debt ceiling is an upper limit set by Congress on the total amount of money the government can borrow to finance its operations and pay its obligations.[2] When the government reaches the debt ceiling, it cannot borrow any more money without congressional approval. When the government needs to borrow money to pay its debts, raising or suspending the debt ceiling becomes a necessary step. Congress has routinely raised the ceiling for much of the previous century.[3] Whenever the Treasury Department could no longer pay the government’s bills, Congress has acted quickly and sometimes unanimously to increase the limit on what it could borrow.[2] The ceiling has been increased by Congress seventy-eight times since 1960, with the most recent increase occurring in 2021.[2] Republican presidents implemented forty-nine of these increases, while twenty-nine were implemented under Democratic presidents.[2]
However, the debt ceiling has become a political battle in recent years because it is one of the few must-pass bills, so lately Republicans have seen it as an opportunity to make demands. Republicans in the U.S. House of Representatives have refused to raise the nation’s debt ceiling unless President Biden agrees to their demands, which include dramatic spending cuts and work requirements for recipients of government assistance.[4] On the other hand, Biden supports an uncomplicated bill for increasing the debt ceiling with no prerequisites.[4] Despite weeks of intense negotiations, little progress has been made towards reaching a deal between the two parties.[4] In essence, they are engaged in a game of “chicken” with the entire national economy, where both sides are wagering that the other will be the first to give in rather than risk a catastrophic economic collapse.[4]
If the debt ceiling isn’t raised, the U.S. won’t have the legal authority to pay for spending it has already committed to, like Medicare and Social Security payments.[4] In other words, the U.S. would be forced to default on its debt, which would have a catastrophic impact on the economy. If the stock market were to crash, the possibility of millions of individuals losing their jobs would become a reality.[4] President Biden earlier this month said he’s “considering” the use of the 14th Amendment as a means to circumvent the debt ceiling, though he cast some doubt on whether it could work.
If Biden were to invoke the 14th Amendment to sidestep the debt ceiling and continue borrowing, White House aides warn that investors would question the validity of any bonds issued under this untested authority. According to them, the economy could spiral out of control due to the same impact caused by an actual default, owing to the uncertainty.[5] McCarthy is facing difficulties due to a straightforward fact: A significant portion of the Republican Conference, estimated to be between 20-30 members, will not accept anything other than the Limit, Save, Grow Act that was approved by the House recently.[6] These individuals have put their political credibility on the line by refusing to give in to Democrats and are determined to stand their ground.[6]
McCarthy's allowable loss in any negotiated debt-limit agreement is limited to a mere five votes.[6] This implies that he requires backing from a minimum number of House Democrats in order to attain approval.[6] Simultaneously, the agreement must not offer an excessive amount of what conservatives desire as it would deter Democrats from providing McCarthy with the necessary votes to achieve success.[6] In April, the House Republicans approved a bill as their starting point for negotiations.[7] The proposed law aimed to increase the debt limit by $1.5 trillion or until March 2024 while also reducing federal spending by $4.5 trillion.[8] Republicans were accused by Democrats of attempting to cut down on programs that cater to the needs of people.[7]
On Friday evening, Treasury Secretary Janet Yellen gave a warning that the country's funds would be depleted by June 5, emphasizing the deadline that Congress must meet. Earlier projections suggested that the nation might face a default as soon as June 1st.[9] In a statement released late on Saturday night, President Biden asserted that the agreement “safeguards” the Democrats' policies, while also acknowledging that not everyone's desires were fulfilled. This is a significant advancement that cuts down expenses, safeguards essential initiatives for the workforce, and bolsters the economy for all.[10] According to Biden, the agreement is a form of compromise, implying that not everyone will receive their desired outcome.[11]
In conclusion, the debt ceiling has become a political battleground in recent years, with Republicans using it as an opportunity to make demands. The consequences of breaching the debt ceiling would be catastrophic, with the U.S. forced to default on its debt, leading to a crash of the stock market and millions of job losses.
0. “Rep. Kildee: GOP wants to solve the debt ceiling problem they created” MSNBC, 27 May. 2023, https://www.msnbc.com/the-last-word/watch/rep-kildee-gop-wants-to-solve-the-debt-ceiling-problem-they-created-177431621690
1. “Here's what's in the emerging debt-ceiling deal — such as a cut to the IRS” MarketWatch, 26 May. 2023, https://www.marketwatch.com/story/heres-whats-in-the-emerging-debt-ceiling-deal-such-as-a-cut-to-the-irs-e1dfff46
2. “What Happens When the U.S. Hits Its Debt Ceiling?” Council on Foreign Relations, 25 May. 2023, https://www.cfr.org/backgrounder/what-happens-when-us-hits-its-debt-ceiling
3. “Analysis | McCarthy's salesmanship to conservatives to be tested with debt deal” The Washington Post, 27 May. 2023, https://www.washingtonpost.com/politics/2023/05/27/mccarthys-salesmanship-conservatives-be-tested-with-any-debt-deal/
4. “What’s The Deal With The Fight Over The Debt Ceiling?” FiveThirtyEight, 25 May. 2023, https://fivethirtyeight.com/videos/whats-the-deal-with-the-fight-over-the-debt-ceiling/
5. “Debt ceiling crisis forces Biden to wrestle with limits on his power” The Washington Post, 27 May. 2023, https://www.washingtonpost.com/politics/2023/05/26/biden-debt-limit-presidential-power/
6. “Kevin McCarthy's Hardest Job Will Be Selling a Debt-Limit Deal to Conservatives” Barron's, 25 May. 2023, https://www.barrons.com/articles/debt-ceiling-mccarthy-congress-compromise-79f609ce
7. “White House, GOP House leaders reach tentative debt ceiling deal to avert default” CBS News, 28 May. 2023, https://www.cbsnews.com/news/tentative-debt-limit-deal-reached-white-house-biden-kevin-mccarthy/
8. “‘Give me a g—–n break': House Dem fumes on MSNBC over GOP demands on debt ceiling” Fox News, 26 May. 2023, https://www.foxnews.com/media/give-me-g-n-break-house-dem-fumes-msnbc-gop-demands-debt-ceiling
9. “McCarthy and Biden try to resolve final debt roadblocks” POLITICO, 27 May. 2023, https://www.politico.com/news/2023/05/27/debt-negotiations-stalled-june-5-deadline-00099101
10. “Debt ceiling agreement in principle reached between Democrats, Republicans” Fox News, 28 May. 2023, https://www.foxnews.com/politics/biden-mccarthy-meeting-debt-ceiling-progress-was-made
11. “Biden and McCarthy agree to raise the US debt ceiling” Yahoo Finance, 28 May. 2023, https://finance.yahoo.com/news/biden-and-mccarthy-agree-to-raise-the-us-debt-ceiling-022654917.html
