By bwinck@businessinsider.com (Ben Winck)
Say something if you’ve heard this one before.
The deadline to raise or suspend the debt ceiling is weeks away. Democrats say the responsibility to avoid a catastrophic default on America’s debt is bipartisan, as it has been the 78 times Congress has avoided it before. Senate Republicans, however, are withholding their support. They argue that Democrats need to go it alone if they want to spend trillions on President Joe Biden’s economic agenda.
The situation is almost identical to the one lawmakers faced earlier in the fall. A debt-ceiling crisis was avoided in October when Senate Minority Leader Mitch McConnell reversed course at the last minute and helped Democrats get a two-month extension on the deadline.
Now senators are running into the same challenge again. Treasury Secretary Janet Yellen said Tuesday that the US can only continue to pay its bills until December 15. With mere weeks to stave off catastrophe, neither party has changed its tune.
“We cannot let the full faith and credit of the United States lapse and we are focused on getting this done in a bipartisan way,” Senate Majority Leader Chuck Schumer said in a Tuesday press conference.
At around the same time, McConnell said Congress would “figure out how to avoid default,” adding “we always do.”
McConnell has said he won’t offer Democrats the same deal he gave in October. Sen. Ted Cruz told Insider he doesn’t have any plans to join Democrats in raising the limit, and Sen. Lindsey Graham said Republicans are “still talking about it.”
“I hope we come up with a plan,” Graham told Insider.
Democrats pushed into the reconciliation corner
That leaves Democrats with just one realistic option. The party could lift the ceiling through the reconciliation process, which lets Senate Democrats approve legislation with a simple 50-vote majority. Treasury Secretary Janet Yellen warmed to the option earlier in November, telling The Washington Post it’s a “viable” solution and much better than to “play chicken” with Republicans.
Schumer stopped short of ruling out reconciliation, and other key party members have hinted the process is being explored.
“We’re looking at all the options, but this country cannot fail to pay its debt,” Sen. Bernie Sanders told reporters Tuesday.
Other Senate Democrats, however, see bipartisan agreement as the only option. Reconciliation requires more than a week of intense negotiations. Republicans could create new delays by hanging “so many crazy amendments” on a reconciliation bill, Sen. Tammy Duckworth told Insider, adding Democrats “made it clear that we’re not doing debt ceiling with reconciliation.”
The process is “just so much more complicated” and completely unnecessary if the GOP would lend a hand, Sen. Sherrod Brown said.
“Why not just do what presidents of both parties and leaders of both parties in the House and Senate have done in the past?” he told Insider.
The dangers of a US default
If Congress bucks precedent and fails to raise the limit, the fallout would be swift and devastating. Government payments, such as payroll for federal workers and Social Security checks, would be immediately frozen. Financial markets would plummet as investors dump risky assets and seek safe haven. Stock prices would crash by one-third before recovering, and the crash would erase roughly $15 trillion from household wealth, according to Moody’s.
The crisis would also come as the economic recovery starts to accelerate. The country is still far from fully healed, and breaching the debt ceiling would only plunge it into a new disaster. Moody’s estimates the crisis would eliminate about 6 million jobs and nearly double the unemployment rate to 9%.
Much of the damage to the country would be intangible and nearly impossible to forecast. Hitting the limit would mar centuries-old confidence in government credit. The US dollar serves as the world’s reserve currency in part because of its stability. Governments and businesses around the globe rely on the US to always repay its debts.
A default would shake that core aspect of the global financial system. Borrowing costs in the US would skyrocket as governments and industry seek out an alternative currency. Interest payments on everything from home loans to credit cards would climb. Even if the US can stabilize its economic situation, confidence in its credit would be permanently dented.
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“I can’t think of anything more harmful to the role of the dollar than failing to raise the debt ceiling,” Treasury Secretary Yellen said in September Senate testimony.
The clock is ticking for lawmakers to save the country from economic chaos. And so far, no lawmaker has a clue how they’re going to do it.