The U.S. Debt Problem in the Light of 100 Days of Speaker Mike McCarthy’s Giant Debt Cut-and-Save

But it’s unclear McCarthy can maneuver a debt bill through the House with such a thin majority. Some moderates may be reluctant to back provisions that add work requirements to federal assistance programs like food stamps. McCarthy acknowledged his rough path to obtaining the votes to be elected speaker 100 days ago in his speech on Monday. One of the demands from conservatives who initially withheld their support from McCarthy was that the House would not vote on a stand-alone measure to lift the debt limit. Fiscal conservatives also wanted a plan to balance the budget within 10 years, but House Republicans are still negotiating amongst themselves on a budget blueprint, and McCarthy has decided to instead roll out a debt proposal in the hopes he can force the president to the negotiating table.

Why is there a limit on U.S. borrowing? Congress is required by the constitution to authorize borrowing. The debt limit was put in place so the Treasury wouldn’t need to ask for permission to issue debt multiple times to pay bills.

The limit has been hit. What now? America hit its technical debt limit. In order to continue paying government’s obligations, the Treasury Department will start using extraordinary measures. These measures are essentially fiscal accounting tools that curb certain government investments so that the bills continue to be paid. By June, those options could be exhausted.

What is at stake? Once the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt and pay its bills. If the government can not make required payments, it could be in trouble with its debt. Such a scenario would be economically devastating and could plunge the globe into a financial crisis.

Can the government do anything to forestall disaster? There is no official playbook for what Washington can do. There are options that exist. The Treasury could try to prioritize payments, such as paying bondholders first. The Federal Reserve could potentially buy Treasury bonds if the United States Defaults on its Debt.

The Secretary of State, Rep. Chuck Biden, re-opens the debate on budget and spending measures against the debt ceiling: “Such an ugly proposition” by Biden

“Without exaggeration American debt is a ticking time bomb that will detonate unless we take serious, responsible action,” McCarthy warned in a speech at the New York Stock Exchange on Monday.

For the past few weeks, President Biden has said the House should present a budget before he agrees to another meeting with McCarthy. He also says any debate on federal spending should take place around the debate this fall on spending bills, not around a measure to increase the debt ceiling.

The speaker of the house was unhappy with the president’s stance and said “enough is enough,” and promised that House Republicans would act on their own. He added, “this is not how the leader of the free world should act. Your partisan games are provoking the very crisis that you want to avoid: more dependency on China, increasing inflation, and threatening Medicare and Social Security.

The speaker has made claims in the past that Democrats are to blame for federal debt but that spending policies of both Republicans and Democrats contributed to the current national debt level.

The speaker said Monday that a “no-strings-attached debt limit cannot pass” and noted that as a Senator, Biden backed attaching spending reforms to legislation to lift the debt ceiling.

McCarthy said that the bill would take back unspent federal funds now that the federal emergency for public health has been ended.

House Republicans also plan to add work requirements for those adults without dependents who are enrolled in federal assistance programs like food stamps. Incentives are important. McCarthy said that the incentives are out of whack.

If House Republicans can’t agree with themselves about how much they want to devastate American families in order to finance their tax cuts for the rich, Democrats will evaluate the bill.

After McCarthy’s speech, Schumer dismissed the proposal as unserious, telling reporters on Capitol Hill, “what we got today was not a plan, it was a recycled pile of the same things he’s been saying for months. None of which has moved the ball forward an inch.”

White House Deputy Press Secretary Andrew Bates said in a written statement Monday that McCarthy “failed to clearly outline what House Republicans are proposing and will vote on, even as he referenced a vague, extreme MAGA wish list that will increase costs for hard-working families, take food assistance and health care away from millions of Americans, and yet would enlarge the deficit.”

Analysts at the Peterson Institute for International Economics warn that there are national security implications if Congress fails to increase the credit limit to pay the bills it has already incurred. It is said in the fact sheet that it will bolster China and Russia, while “sending irreparable doubt among our closest allies” about any promises we made to other countries.