Congress is staring down a potential financial catastrophe with no clear resolution in sight.
The debt limit must be either raised or suspended soon with Treasury Secretary Janet Yellen warning lawmakers that the federal government will likely run out of cash by October 18 unless Congress raises the debt ceiling. But they might not even have that long.
And Democrats and Republicans are at an impasse over how to fix the problem. Republicans argue that Democrats, who control both chambers of Congress and the White House, should address the issue on their own without GOP votes, while Democrats insist the issue is a shared bipartisan responsibility.
House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer have made clear they don’t want to do this on their own using a special budget process known as reconciliation. That leaves little option for a path forward amid a fast-approaching deadline.
Senate Democrats have already tried to pass legislation to suspend the debt limit, but Republicans blocked it.
During a press conference Monday morning, Biden emphasized it was his preference to simply put a House-passed bill to address the debt ceiling on the floor of the Senate and not have Republicans filibuster it. “Just get out of the way and let us pass it,” Biden said, referring to Republicans.
The President called the reconciliation process “fraught with all kinds of potential danger for miscalculation” and warned against it. But he didn’t entirely rule it out, arguing that he was only going to cross that bridge when he got there.
Uncertainty over the exact timeline for when Congress must act makes the entire situation even more complicated and risky.
Why the timeline is uncertain
Lawmakers on Capitol Hill are used to confronting major deadlines and waiting until the last minute to address them. Take what happened just last week, for example, when Congress narrowly averted a government shutdown. In that case, lawmakers faced a hard deadline of midnight on September 30 to act before government funding would expire. Ultimately, both chambers of Congress cleared a stopgap bill to extend funding and prevent a shutdown just hours before the deadline.
The debt limit deadline isn’t nearly as clear cut. That’s because October 18 is not a set-in-stone deadline. It’s more of a best guess estimate of when the money will run out, which makes it far harder to know exactly when Congress would need to act to avert potential financial catastrophe — and increases the odds that lawmakers could accidentally trigger a default by not acting soon enough.
In her letter advising Congress of the October 18 date, Yellen stressed this uncertainty. “It is important to remember that estimates regarding how long our remaining extraordinary measures and cash may last can unpredictably shift forward or backward,” she wrote. “This uncertainty underscores the critical importance of not waiting to raise or suspend the debt limit.”
“We know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come,” Yellen warned.
The day the US would reach a point when it would risk default is referred to as the “X date.” In another reflection of the uncertainty over exactly when that would be, the Bipartisan Policy Center has projected that the “X date” is likely to occur sometime between October 15 and November 4.
Democratic and Republican congressional leaders have both warned that Congress cannot wait to act and risk running up against an uncertain deadline.
In a letter to his Democratic colleagues on Monday, Schumer warned, “We do not have the luxury of waiting until October 18th, as it is our responsibility to re-assure the world that the United States meets our obligations in a timely fashion and that the full faith and credit of the United States should never be in question.”
Schumer went on to say, “The consequences of even approaching the X date could be disastrous for our economy and devastating to American families, raising the costs of borrowing for average Americans and hampering our economic recovery over the long-term.”
The process for how Democrats could go it alone
If Republicans won’t give Democrats the votes, and Democrats go it alone to raise the debt ceiling through reconciliation, that is expected to be a time-consuming process and it is difficult to predict exactly how long it would take.
Last week, Republican and Democratic staff talked once again with the Senate parliamentarian to get guidance on how the debt ceiling could be raised using that process. The parliamentarian made it clear it could be done, but it would require a bit of time.
Here’s how it could work:
- Democrats would have to begin a reconciliation process to raise the debt ceiling
- A vote-a-rama would get the process started and another one would end the process. That’s two more opportunities for Republicans to launch lengthy all-night vote marathons.
- Most aides and members have acknowledged this process could take about two weeks and given where we are in the calendar, that means Democrats need to make a decision soon if they are going to go that route. So far, leadership is advising this isn’t likely, even though most folks watching this closely don’t see another option.
Both sides acknowledge that it could happen, but Democrats’ reluctance to use reconciliation has been real. In part, that’s because they believe it is Republicans’ responsibility to help pay down debts that were incurred together. It’s also because raising the debt limit through reconciliation requires Democrats to vote for exactly how much they want to raise it by. That is an incredibly tough vote for Democrats running for reelection.
If Democrats went ahead and increased the debt ceiling using that special budget process, the Senate parliamentarian made clear last week that it would not impact Democrats’ ongoing effort to use the process to also pass their social safety net bill, a major priority for President Joe Biden and the party. The new effort would be independent of that one and could even be finished before the social safety net bill passed.
High stakes and the risk of economic disaster
If a default did occur, it is expected to be financially catastrophic. Both parties want to avoid that even as they remain locked in a stalemate over how to avert it.
A mild recession would likely be the best-case scenario in the event that the US government defaults on its debts.
The worst-case scenario would involve downstream effects: potentially cascading job losses, a shutdown in tens of billions of dollars in Covid-19 economic recovery aid still set to be delivered, a near-freeze in credit markets and gross domestic product taking a tangible hit that could last for multiple quarters.
Failure to raise the debt ceiling in time could also halt payments that millions of Americans rely on, including paychecks to federal workers, Medicare benefits, military salaries, tax refunds, Social Security checks and payments to federal contractors.
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