On Thursday the United States government hit the artificial and arbitrary limit to borrow money: $31.4 trillion. This is not new or unusual. The U.S. government has been running on borrowed money since its founding.
Right now the U.S. Treasury is adjusting with emergency measures. This means the country’s economy shouldn’t feel the pain of the ceiling until June.
Hitting the debt ceiling normally isn’t a cause for crisis. There is a pro-forma process in Congress to grant the government the ability to borrow more, and the government and the economy go forward.
The midterm elections didn’t deliver a political red wave, but Republicans did manage to win the majority and control of Congress. Now governing, including passing a debt ceiling raise, is up to Speaker Kevin McCarthy along with his caucus of modern-day fire- eaters including Texas Hill Country Representative Chip Roy.
Roy is a leader of “The Freedom Caucus,” a group of Republican holdouts who refused to support McCarthy in his quest to become Speaker. McCarthy finally received a majority of votes and became Speaker on the 15th ballot. But this only came to pass after five Republicans voted present and after he made key concessions.
Roy got what he wanted, a pledge that McCarthy wouldn’t pass raising the debt ceiling without significant spending cuts. However, if McCarthy caves in to pressure and strikes a deal with Democrats and moderate congressional Republicans he will almost certainly be fired as Speaker by Roy and the Freedom Caucus.
Right now, McCarthy is sending out that message to President Biden and the Democratic- controlled Senate that he wants to work out a deal with spending cut to pass a debt ceiling. But passing a clean debt ceiling raise is off the table.
The White House and the Democrats say no deal. They say they aren’t going to negotiate over the debt ceiling.
The White House, Democratic office holders and economists agree that not raising the debt ceiling would be a global economic calamity. And just reaching this point where there is uncertainty about the federal government paying its debts is enough to destabilize the markets and send shockwave thru the economy.
The Government Accountability Office (GAO) estimated that the delay in raising the 2011 debt ceiling increased government borrowing costs by $1.3 billion in 2011 and also pointed to unestimated higher costs in later years. The Bipartisan Policy Center extended the GAO's estimates and found that delays in raising the debt ceiling would raise borrowing costs by $18.9 billion.
I reached out to Congressman Chip Roy’s office to hear his reasoning for holding the debt ceiling hostage. After some back and forth, I didn’t get an interview.
Game of Chicken
Aaron Blake, a staff writer for the Washtingon Post, says the Republican Congress and the Biden White House are playing a game of chicken.
Economic Mayhem
Johns Hopkins University financial expert Kathleen Day said this the debt ceiling showdown could lead to economic mayhem that will cost everyone with inflation, higher interest rates and lost jobs.
Day is a full-time lecturer at Johns Hopkins Carey Business School and an author. Her most recent book is Broken Bargain: Bankers, Bailouts, and the Struggle to Tame Wall Street
