Treasury Debt, the Treasury Department, and the Wall-String Debt Problem (Invited Speaker Kevin McCarthy’s Letter to Congress)
WASHINGTON — Speaker Kevin McCarthy on Monday proposed a one-year debt ceiling increase paired with a set of spending cuts and policy changes, backing down substantially from earlier demands but making clear that Republicans would not raise the borrowing limit to avert a catastrophic debt default without conditions.
Why is there a limit on U.S. borrowing? According to the Constitution, Congress must authorize borrowing. The debt limit was instituted in the early 20th century so that the Treasury would not need to ask for permission each time it had to issue debt to pay bills.
The limit has been reached. What about now? The debt limit was hit by America on January 19. The Treasury Department will now begin using “extraordinary measures” to continue paying the government’s obligations. These fiscal accounting tools curb certain government investments in order to keep the bills from being paid. It’s possible that those options will be exhausted by June.
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 is unable to make required payments on its debt, it could be in a position to default. A financial crisis is a possibility if this scenario are to occur.
Can the government do anything to forestall disaster? There is not an official way for Washington to do things. 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 were to default on its debt.
The Great Debt Problem of the Early 20th Century: President Biden, the House Speaker, and the National Security Advisory Committee (NSEMC)
McCarthy warned in a speech at the New York Stock Exchange that American debt is a “ticking time bomb” that needs to be addressed.
President Biden has said for weeks that House Republicans should present a budget proposal before he agrees to another meeting with McCarthy to negotiate any compromise. 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 complained about the president’s posture, saying “enough is enough” and vowing House Republicans would act on their own. He added, “this is not how the leader of the free world should act. Your political games are provoking a crisis you claim you want to avoid, which is a dependency on China, increases in inflation and threatens Medicare and Social Security.
The speaker makes a claim that Democrats are to blame for the trillions in federal debt because of their tax proposals and spending policies from both Republican and Democratic administrations.
The speaker mentioned that as a senator, Biden wanted spending reforms to be attached to legislation to lift the debt ceiling.
The President signed legislation that ended the federal emergency to the public health epidemic, which McCarthy said would result in the claw back of unspent federal funds.
Those without dependents who are on federal assistance programs such as food stamps should have work requirements added by House Republicans. Incentives are important. And the incentives today are out of whack,” McCarthy said.
Democrats will evaluate the bill based on how much House Republicans can agree with themselves to fund tax breaks for the wealthy, well- off and well-paid, if it’s ever approved by Congress, according to Christie Stephenson.
Schumer told reporters on Capitol Hill that McCarthy’s proposal wasn’t a plan, it was a 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. A fact sheet circulated by the group says it could boost China and Russia while “sowing irreparable doubt among even our closest allies not just about US financial commitments, but about any promises we have made to other countries.”
If Speaker Kevin McCarthy does not find a way to extricate his house Republicans from a debt trap set for President Joe Biden, millions of Americans will face massive consequences.
The California Republican traveled to Wall Street on Monday to deliver a warning that the House GOP majority would refuse to lift a cap on government borrowing unless Vice President Biden agrees to spending cuts that will effectively destroy his domestic agenda.
McCarthy assured traders that he would not allow the US government to default on its obligations, which would cause a recession, lead to Social Security payments being stopped and cause hundreds of job cuts in the fall.
The Risk to the American Economy: Borrowing Debt to Service the Government’s Debt Threshold in the Presence of Extremism
The risk to Americans comes here. It’s hard to see how a rookie speaker, with a tiny majority and a conference containing plenty of extremists, can engineer either of these outcomes.
Most countries don’t require the legislature to raise the government’s borrowing threshold. The quirky situation in the US makes a once routine task an opportunity for political mischief. Since the government spends more than it makes in revenue, it must borrow money to service its debt and pay for spending that Congress has already authorized. It has no problem getting more credit since the US makes its bills on time and has a stellar credit rating.
In effect, McCarthy will set up a severe test of his leadership since there’s no guarantee that he can pass the measure in a House where he can only lose four votes and in which there are few signs the fractious GOP can agree on what programs to cut and by how much. Even if the measure does get through the House in the coming weeks, it will most likely be a Republican product that Biden and the Senate won’t like. The concessions that could be found in any subsequent package would almost surely split the GOP’s support.
“I think we got 218 to raise the debt ceiling,” McCarthy told CNN. We have a lot of agreement within the conference. We will get together and work through it.
Source: https://www.cnn.com/2023/04/18/politics/mccarthy-biden-debt-ceiling/index.html
The Debt Ceiling Battle: How President Biden and the Speaker of the House Haven’t Learned to Deal with their Dreams?
His assurances may not be very reassuring, however, because his similarly blithe predictions that he had the votes to win the speakership in January degenerated into a farcical process that saw him make huge concessions to his party’s most radical members and required 15 ballots before he finally won the job of his dreams.
The debt ceiling fight might be the defining moment of the two-year period of uneasy cohabitation between the Democrat and Republican speaker. Neither Biden nor McCarthy can afford to lose, and the outcome will shape both their legacies.
So far, Republicans seem to be having trouble negotiating with themselves, let alone Biden. The Republican Party hopes to pass the bill next week, but it remains to be seen if it will pass over the opposition.
“I think the hardest part is just that there are an unlimited number of conservative policy victories that, of course, we all want to see worked in,” Johnson told CNN’s Manu Raju. “The reality is that in a negotiation, you never get everything you want. How do we squeeze these thousand of desires down to a manageable number of askings is our biggest issue right now.
There is nothing wrong with Republicans seeking to use the leverage they won in a democratic election to try to further their political goals of cutting public spending. There are some GOP lawmakers who sincerely worry about debt and deficits – even when their party runs government. Plenty of economists worry about the always ballooning national debt, which has crashed through $31 trillion. The debate over whether Biden worsened the inflation crisis was sparked by the large amount of money he spent on Covid relief packages, infrastructure, climate Mitigation measures and health care programs.
But are Republicans choosing the right hill for this battle when jobs, market-linked pension plans and the economic well-being of millions are at risk? The absolutist nature of McCarthy’s position pays little heed to a delicate balance of power. Democrats control both the White House and Senate, so voters might have been looking for compromise instead of confrontation if they had given Republicans the House.
There is a chance that American debt will explode unless we take serious responsibility for it. Yet, how has President Biden reacted to this issue? He hasn’t done anything. He thinks the rest of America is irresponsible.
Previous fiscal showdowns between GOP-controlled Congresses and Democratic presidents have often rebounded poorly on Republicans. Presidents Bill Clinton and Barack Obama, for example, branded their foes in the House as economic arsonists and thereby gained political traction.
Republicans did three times in the last administration and as Presidents Reagan and Trump argued for in office to address the debt limit without resorting to brinksmanship.
Source: https://www.cnn.com/2023/04/18/politics/mccarthy-biden-debt-ceiling/index.html
Sen. McConnell, a Republican Democrat, and the Resolution of the House Correspondence Concerning the Debt Causality: Why the Senate is Going Wall Street Way
The Republicans in the Senate have been trying to keep their heads above water. McConnell gave his colleague in the House some moral support on Monday when he returned to the Capitol after a fall.
President Biden does not have the power to refuse to listen, talk, or negotiate. The people in the US know that. The White House needs to stop wasting time and start negotiating with the Speaker of the House,” McConnell said, though notably didn’t volunteer to get involved.
McCarthy’s speech on Monday only furthered the impression that a damaging political crisis over the debt ceiling is, after months of simmering, moving toward a boil.
As Senate Democratic Majority Leader Chuck Schumer of New York put it on Monday: “He went all the way to Wall Street and gave us no more details, no more facts, no new information, and I’ll be blunt: If Speaker McCarthy continues in this direction we are headed to default.”