Finance officials say the risk of default is already hurting the economy.
President Biden met with finance officials on Wednesday as he continued to try to put maximum pressure on Senate Republicans to raise the debt ceiling by October 18, when the Treasury Department said the United States would default.
Shortly after the meeting, Senator Mitch McConnell, the minority leader, appeared to give in to his opposition to allowing Democrats to lift the cap in the short term through the usual channels. He said he “would allow Democrats to use normal procedures to adopt an emergency extension of the debt limit to a fixed dollar amount to cover current spending levels through December.”
Leaders have all warned that the economy would be at risk if the country defaults on debts for the first time in history.
“This is already starting to wreak havoc on the economy,” said Jane Fraser, CEO of Citigroup, to the chairman. “It will hurt consumers. It will hurt small businesses. “
“It is no exaggeration to say that even small distortions in the Treasury market can cost taxpayers tens of billions of dollars over many years,” she added, referring to the market for bonds issued by the Department of the Treasury.
Mr Biden, seeking to explain the consequences to ordinary Americans, asked the leaders to explain what would happen if the United States only defaulted for a day or two.
“Certainly, as we know, today there are hundreds of millions of investors involved in the markets who have put their hard-earned savings on the markets,” said Adena Friedman, chief executive of Nasdaq. “And we would expect the markets to react very, very negatively.”
Kentucky’s McConnell has long said Democrats need to use a more complicated process known as reconciliation to overcome Republican opposition to raising the debt ceiling. In his statement on Wednesday, he reiterated that the reconciliation process was the only option he supported for a longer term increase in the limit, unless “Democrats give up their efforts to get through another historically reckless tax and spending frenzy “.
The financial sector was expecting two dark weeks. A report released by Goldman Sachs said there was little reason to believe Congress would meet the Oct. 18 deadline, but that “the response from the public and financial markets would likely force a swift political resolution.”
Senate Democrats are still weighing their options for a way forward. Jen Psaki, the White House press secretary, told reporters on Wednesday that the White House did not view Mr McConnell’s statement as a “formal offer” and that the president did not want to continue to prolong the process. “We don’t need to go through a cumbersome process that brings additional risks every day,” Ms. Psaki said.
When asked why the White House is not supporting an increase in the short-term debt ceiling that could, at least temporarily, calm financial markets, Ms Psaki replied, “Why not do it now? She said Mr. Biden and Mr. McConnell had yet to talk about the debt limit.
Understanding the US debt ceiling
What is the debt ceiling? The debt ceiling, also known as the debt limit, is a ceiling on the total amount of money the federal government is allowed to borrow through US Treasury bills and savings bonds to meet its financial obligations. Because the United States has budget deficits, it has to borrow huge sums of money to pay its bills.
The budget reconciliation process would most likely involve two politically charged ballot marathons which Biden said would be “laden with all kinds of potential dangers of miscalculation.” Democrats say there is no guarantee Republicans would not drag these votes to inflict procedural and political malaise.
Another option would be to change Senate rules to weaken the ability to filibuster, a proposal that has become increasingly popular in recent years as the partisan deadlock has deepened.
Lawmakers have provided other exceptions to filibuster. In 2017, Senate Republicans created an exception to pave the way for Neil M. Gorsuch, President Donald J. Trump’s first Supreme Court nominee, to take the bench. In 2013, Senate Democrats did so to overcome Republican opposition to President Barack Obama’s nominees for cabinet and judge positions.
On Tuesday evening, Biden called the route a “real possibility.” On Wednesday, he said he wanted to explain “in plain language” what was at stake if Republicans remained indifferent.
“Democrats are ready to escalate and stop this economic disaster if Senate Republicans get out of the way,” Biden said. “It’s not fair, and it’s dangerous.”
Mr McConnell said passing the extension would “discuss the Democrats’ apologies for the time crunch they have created”, allowing them to proceed with reconciliation. “A more traditional bipartisan government conversation might be possible” if they abandon plans for giant spending bills, he said.