President Biden met with finance managers Wednesday as he continued to try to put maximum pressure on Senate Republicans to raise the debt ceiling before October 18, the date the Treasury Department said the United States would default .
Shortly after the meeting, Senator Mitch McConnell, the minority leader, appeared to have been regularizing his opposition to the Democrats’ short-term increase in the ceiling. He said he would “allow Democrats to use normal procedures to pass a fixed dollar emergency debt limit extension to meet current spending levels through December.”
The White House dismissed Mr McConnell’s statement as an informal offer, saying the president would prefer Republicans to allow a vote on an spending bill.
Executives warned everyone that the economy would be threatened if the country defaulted on its debts for the first time in history.
“It’s already starting to do some damage to the economy,” said Jane Fraser, the executive director of Citigroup, to the president. “That harms consumers. It will hurt small businesses. “
“It is not an exaggeration to say that even small distortions in the financial market can cost taxpayers tens of billions of dollars over many years,” she added, referring to the Treasury Department’s bond market.
Trying to convey the consequences to ordinary Americans, Mr. Biden asked executives to explain what would happen if the United States defaulted for just a day or two.
“Of course, as we know, there are hundreds of millions of investors in the markets today who have poured their hard-earned savings into the markets,” said Adena Friedman, CEO of Nasdaq. “And we expect the markets to react very, very negatively.”
Kentucky McConnell had long said that the Democrats would have to use a more complicated process known as reconciliation to overcome Republican resistance to raising the debt ceiling. In his statement on Wednesday, he reiterated that the reconciliation process was the only option he advocated for a longer-term increase in the limit, unless “Democrats give up their efforts to ram their way through yet another historically ruthless tax and shopping spree “.
The financial sector had forecast bleak two weeks in advance. A report released by Goldman Sachs said there was little reason to believe that Congress would meet the October 18 deadline, but that “public and financial market reactions would likely force a quick political resolution.”
Senate Democrats are still weighing their options for a way forward. White House press secretary Jen Psaki told reporters Wednesday that the White House did not want to extend things with an extension. “We don’t have to go through a tedious process that brings additional risks every day,” said Ms. Psaki.
When asked why the White House does not support a short-term hike in the debt ceiling that could at least temporarily calm the financial markets, Ms. Psaki replied, “Why not just now?” She said Mr. Biden and Mr. McConnell had not discussed the debt ceiling yet .
The budgetary reconciliation process would most likely involve two marathons of politically charged votes that Biden predicted would be “fraught with all possible dangers of miscalculation”. Democrats say there is no guarantee that Republicans will not pull out those votes to cause procedural and political inconvenience.
Understand the US debt ceiling
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What is the debt limit? The debt ceiling, also known as the debt limit, is an upper limit to the total amount that the federal government can borrow through US Treasury bills and savings bonds to meet its financial obligations. Since the US has a budget deficit, it has to borrow huge sums of money to pay its bills.
When will the debt limit be exceeded? Technically, the US hit its debt limit at the end of July. Treasury Secretary Janet Yellen has since taken “extraordinary measures” to delay a default. Ms. Yellen warned of “catastrophic” consequences if the debt ceiling were not raised ahead of a default, which the Treasury Department estimates would occur on October 18th.
What are the consequences? Ms. Yellen told Congress that inaction could lead to a self-inflicted economic recession and financial crisis. She also said that failure to raise the debt ceiling could adversely affect programs that help millions of Americans, including delays in Social Security payments.
Why is the US restricting borrowing? The constitution requires Congress to approve the borrowing. The debt limit was introduced in the early 20th century so that the Treasury Department would not have to ask for permission every time it had to issue bonds to pay bills.
Why hasn’t Congress acted yet? Led by Senator Mitch McConnell, Republicans have said the Democrats must cast all of the votes to raise the debt ceiling but have thwarted their attempts to do so. Senate Democrats are increasingly seeing the GOP blockade as a clear justification for changing the Chamber’s filibuster rule.
How about raising the debt ceiling through reconciliation? Reconciliation, an expedited process that protects tax laws from filibusters, is one way Democrats could bypass the Republican opposition and act unilaterally. But Democratic leaders have publicly opposed this option, which would be complex and time consuming.
Why is it so difficult to raise the debt ceiling? Raising the debt ceiling was routine for many years. But as the political environment becomes more polarized, Congress is playing an increasingly dangerous political game over the debt ceiling.
Do other countries do that? Denmark also has a debt ceiling, but it is set so high that raising it is generally not a problem. Most other countries don’t. In Poland, the national debt must not exceed 60 percent of the gross domestic product.
What alternatives to the debt brake are there? The lack of a replacement is one of the main reasons for the debt ceiling to persist. Ms. Yellen said she would support laws to remove the debt ceiling, which she described as “destructive”. It would take an act of Congress to lift the debt ceiling.
Another option would be to change the Senate rules to weaken the filibuster capability, a proposal that has grown in popularity in recent years as the partisan deadlock has worsened.
The legislature has created other exemptions from the filibuster. In 2017, Senate Republicans created an exception to clear the way for Neil M. Gorsuch, President Donald J. Trump’s first Supreme Court candidate. In 2013, Senate Democrats did so to overcome Republican opposition to President Barack Obama’s candidates for cabinet and magistrate posts.
On Tuesday evening, Mr Biden called this route “a real possibility”. On Wednesday, he said he wanted to explain “in plain language” what would be at stake if Republicans were to remain unmoved.
“The Democrats are ready to move forward and stop this economic disaster if the Republicans in the Senate just get out of the way,” Biden said. “It’s not right and it’s dangerous.”
McConnell said that passing the extension would “dispute the Democrats’ excuses about the shortage of time they are creating” so they could move forward through reconciliation. “A more traditional bipartisan government conversation might be possible” if they abandon plans for huge spending bills, he said.