CHN: Debt Ceiling Disaster Averted – For Now
The Senate on Oct. 7 passed legislation to increase the nation’s borrowing limit, also known as the debt ceiling or debt limit, by $480 billion. This is expected to allow the government to pay its bills until around Dec. 3, when the current stopgap government funding bill is also set to expire (see the related piece in this Human Needs Report for more information on FY22 government funding). Incoming payments from taxes and other accounting tools could buy additional time, perhaps postponing the next debt ceiling deadline to later in December or early January 2022.
House Majority Leader Steny Hoyer announced the House would return to Washington on Oct. 12 to take up the measure. The President will then sign the bill. Without action, our country would fail to pay the bills it has already incurred and default on its financial obligations. Treasury Secretary Janet Yellen warned Congress that tipping point would come by Oct. 18.
Senate Republicans on Sept. 27 killed movement of a bill that would have funded the government through Dec. 3 and suspended the debt limit through 2022, and they continue to insist that Democrats raise the debt ceiling on their own using a process known as reconciliation that needs only a simple majority vote in the Senate. Democrats have been adamant that the bills the Treasury Department needs to pay aren’t solely from Democratic debts – they come from the 2017 multi-trillion-dollar Republican tax cuts, the bipartisan American Rescue Plan, and other legislation passed under President Trump and Republican congressional leadership – and that dealing with the debt limit therefore needs to be bipartisan. The Senate Parliamentarian notified Senate leadership that Congress can amend its budget resolution to allow a separate new reconciliation bill dealing with the debt limit without any effect on the Build Back Better bill. Minority Leader McConnell is pushing for that approach, to force Democrats to raise the limit on their own. Democrats have opposed using reconciliation for this purpose, in part because they would prefer to suspend the debt ceiling rather than raise it by a specific number. Although this has not been formally determined, a common interpretation is that using reconciliation to raise the debt limit would require an increased debt amount rather than a suspension. After cooperating to get the temporary increase in the debt limit, Minority Leader McConnell has announced his caucus will not do so again in December, so the standoff continues.
Economists and business leaders overwhelmingly agree that failure to raise the debt ceiling would do catastrophic damage to the U.S. and to economies and markets worldwide. Mark Zandi, Chief Economist at Moody’s Analytics, warned that a prolonged impasse over the debt ceiling would cost the economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth, and send the unemployment rate roughly to 9 percent, from around 5 percent right now.