If the two most important leaders in Washington can’t agree to lift the debt ceiling by the time the Treasury runs out of money to pay its debts, the United States – the world’s fabled economic safe haven – could go into default.
Every American could get hurt in the ultimate demonstration of how partisan politics, including growing conservative extremism, is threatening the country’s ability to govern itself and could doom it to a self-inflicted disaster.
Because the government typically spends more than it takes in through revenues, it must borrow money to pay for commitments that Congress has already made.
So, if lawmakers don’t grant more lending authority by mid-summer, Social Security retirement payments will be on the line. Veterans could stand to lose their vital health and living benefits. Americans whose 401(k) funds are locked into stocks could see their savings plummet in a global market crash. Borrowing costs for consumers would also likely spike, potentially plunging the economy into a recession that could choke job growth and cause widespread misery.
The Republican speaker and Democratic president have been amping up for days by digging into positions from which it will be hard to retreat. Both sides are effectively betting that the consequences of failure would be so hideous, and politically ruinous, that the other side will blink first. But what is so frightening in this game of economic Russian roulette is that, just maybe, both sides will stand firm.
McCarthy heads into Wednesday’s meeting with an impression – largely rooted in his right-wing House majority’s rhetoric and his own strategizing – that he’s there to negotiate. But Biden says there can be no negotiating on such a cliff edge and is refusing GOP demands for huge spending cuts in return for more borrowing authority. This is not the first time that the country’s reputation for paying its bills has been on the line. Credit ratings agency Standard & Poor’s downgraded the country’s stellar rating slightly following a debt ceiling standoff in 2011, citing dysfunctional US policymaking.
Americans should be especially worried now because the normal assumption that it will all get sorted out after some typical 11th hour brinkmanship is looking far shakier. For one thing, McCarthy only won the speakership in chaotic scenes last month after promising hardliners that he’d hold Biden to ransom on the debt ceiling. If his tiny GOP majority won’t agree to vote for more borrowing, or if he seeks Democratic votes to get it done, his speakership could be history.
Furthermore, some Donald-Trump-style House Republicans might enjoy the chaos that would ensue if the debt ceiling isn’t raised – either because of an ideological reluctance to fund government itself or over the prospect that a wounded Biden could be easier prey for the ex-president if they meet in the 2024 election. Given these dynamics, and McCarthy’s own transformation into a “Make America Great Again” Republican, he might be tempted to side with the extremists in his conference. Still, their sudden fiscal responsibility looks hypocritical since they waved through several debt ceiling hikes when Trump was ballooning the deficit.
Americans have been through a tough time. A worst-in-a-century pandemic, disruption to schooling, more than a million Covid-19 deaths, an insurrection fueled by Trump’s election lies and an economic crisis have left the country exhausted and demoralized. But hope is sprouting. Job growth is standing firm, inflation is ebbing and with the S&P 500 index up 6% on the year, the recession that had been feared for 2023 may not arrive or may be a shallow one.
A self-inflicted wound now, whoever is mostly to blame, would be just too much.
But it would not be the first time in recent history that overzealous ideology trashed an economy. Last year, then-British Prime Minister Liz Truss introduced a mini-budget implementing far-right conservative economic orthodoxy that included massive tax cuts despite warnings it would be a disaster. The markets reacted with alarm, the pound crashed and there was global criticism, including from Biden. Truss was forced to reverse her plan, but many Britons paid a heavy price when their mortgage payments soared. She resigned the leadership of the Conservative Party and left 10 Downing Street weeks later.
Could the economy fall prey to McCarthy’s ambition?
The potential fallout from the Biden-McCarthy standoff has raised expectations for their meeting to extraordinary heights.
Their encounter is vital to McCarthy because it is imperative for him to be seen as standing up to Biden to stay in the good graces of the extreme GOP majority. In farcical scenes in which he took 15 ballots to win the speakership last month, the California Republican effectively pledged to extract spending cut concessions from Biden. So it’s fair to wonder whether McCarthy is risking the economic wellbeing of tens of millions of Americans to fulfill his own ambitions.
Heading into the talks, the House speaker, who voted not to certify Biden’s 2020 election victory, is being seen in some corners of Washington as a weak leader – another reason why he may feel tempted to turn on the theatrics in the meeting. His situation mirrors his visit to the White House with fellow congressional leaders in November after Republicans secured a narrow House majority in the midterm elections. The-then minority leader put on a histrionic display outside the West Wing, seemingly aimed at GOP hardliners and even Trump.
“I think the administration got an impression that it’s going to be different,” McCarthy said, touting the new Republican power in Washington – but also perhaps unwisely raising the stakes for himself.
McCarthy is shrugging off charges that he’s a weak puppet of the hardline pro-Trump right. He’s vowing not to play “political games.” And he’s blaming Biden for rigidity.
“I’m looking forward to sitting down with the president, negotiating for the American public, the people of America, on how we can find savings,” McCarthy said. “We’ve watched what the spending has done, we watched it (bring) us inflation. … I think we’re going to sit down and negotiate.”
Do Republicans have a point?
Many Americans are concerned about government splurges in the two years Democrats had full control of Washington, following trillion-dollar bills that passed on the basis of obscure Senate rules and heavy emergency health care and economic outlays during the pandemic.
The Republican House majority might be smaller than the red-wave triumph McCarthy expected, but Republicans still won, in part, by calling to rein in government expenditures. So why shouldn’t House Republicans use the leverage that they have? Some GOP voters and lawmakers will regard the new House majority as a failure if they are not able to stem spending – even if they didn’t have the same inclination when Trump was in the White House.
Republicans appear to be betting they can make Biden cave.
“I think this is an opening salvo. It’s not where they’re going to end up,” Utah Republican Rep. Chris Stewart told CNN’s Jake Tapper on “The Lead” Tuesday.
“The president is going to have to negotiate with us. And hopefully we can get to some concessions that we can say to the American people, yea, we’re trying to be fiscally responsible.”
The risk of miscalculation is grave and growing
This uncertainty is what makes the current situation so dangerous: The risk of each side underestimating the other’s stance is rising.
The White House response to the McCarthy-Stewart position is to argue that even thinking about forcing concessions on such a consequential issue is dangerous.
“Congress has the obligation to prevent default, and speaker McCarthy knows that,” said White House communications director Kate Bedingfield on CNN “Newsroom” on Tuesday, citing the Republican’s previous votes to raise the debt ceiling under Trump.
“The president is going to ask in this meeting tomorrow: Will you commit, will you guarantee to the American people that you will not hold the economy hostage?” Bedingfield said.
The debt ceiling standoff is no less critical for Biden than it is for McCarthy. The president’s first big tussle with the new GOP speaker will set the tone for two years of divided government, establish who is the top dog in the capital and is vital for the economy on which Biden is relying for reelection.
The dynamics of this face-off are also a departure from Biden’s decades of crunch congressional negotiations as a senator and vice president. Republicans may be interpreting that record as a sign that he will not be able to resist a bargaining session. In a more normal political world, one way to unpick the deadlock might be for Biden to offer McCarthy a concession to ease his own particular predicament.
Yet Biden appears to have no such intention, although the White House is messaging – with its new mantra that the president will show McCarthy his budget and demand a corresponding one from the Republicans – that talks can take place, but in the normal process of funding the government for the year, not around the debt issue.
Biden appears to be relying on past logic that Republicans who forced the government into a shutdown or ran the economy close to a debt default end up with the political blame.
But the idea that the GOP recognizes this, and will fold, may not fit this particularly fraught political moment since it’s unclear whether McCarthy has the political juice to do so and keep a job he pursued for years.
As Biden put it on Tuesday at a fundraiser in New York: “McCarthy – look what he had to do. He had to make commitments that are just absolutely off the wall for a speaker of the House to make in terms of being able to become the leader.”
That bargain with the radical Republican right is what makes this such a risky situation for the American people.