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DEBT CEILING What happens if the U.S. defaults on its debt? ‘Financial Armageddon’ explained ... Lawmakers on Capitol Hill are no strangers to 11th-hour negotiations, but the stakes are much higher this time. Here’s why. 
[Source Photos: Syed F Hashemi/Unsplash; Emilio Takas/Unsplash] Original article: https://www.fastcompany.com/90893949/debt-ceiling-deadline-crisis-explained-what-happens-us-default Peter Burgess COMMENTARY Peter Burgess | ||
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What happens if the U.S. defaults on its debt? ‘Financial Armageddon’ explained
Lawmakers on Capitol Hill are no strangers to 11th-hour negotiations, but the stakes are much higher this time. Here’s why. Written by CLINT RAINEY 05-09-23 With less than a month before the United States runs out of money, President Joe Biden and House Speaker Kevin McCarthy were finally scheduled to have a quick, carefree chat Tuesday afternoon about how to keep America from careening into a never-before-seen debt crisis that could drag the global economy down with it. The Treasury Department has been warning for months that America’s figurative bank account will hit zero on June 1. If the debt limit isn’t increased before then, the federal government can default on tens of trillions of dollars, commencing what Moody’s chief economist once called “financial Armageddon.” A default could trigger millions of layoffs and would put a (temporary) stop on tax refunds and Social Security, Medicare, and national debt interest payments. How the Treasury puts it: The United States would be “right back in a deep economic hole, just as the country is recovering from the recent recession.” That’s what Biden, McCarthy, and three other leaders from both parties (House Democratic Leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer, and Senate Minority Leader Mitch McConnell) hope to ward off as they sit down together for the first time since February. All of them agree that default shouldn’t happen, but the showdown is concerning how to head it off. WHERE IS THE DISAGREEMENT? The Biden administration’s argument is that a responsible Congress would simply vote to raise the debt limit—a power it possesses, and a power it has exercised some 78 times when America has reached the limit under previous administrations, three of them while Trump was in office. This time, though, Republicans say they will refuse unless Biden and the Democrats agree to reduce U.S. spending. The White House says Biden has agreed to entertain ways to lower the federal deficit but won’t help Congress hold spending hostage, as House members have already approved. In other words, they should fulfill their duly elected roles and increase the debt ceiling so there’s money. Each year, Washington’s biggest spending fight revolves around the federal budget. But that budget keeps growing (it’s climbed 40% since 2019, according to the Congressional Budget Office), and that isn’t a trend line Republicans are fond of. They’re grabbing hold of the debt ceiling as a secondary pressure point to attempt to extract spending concessions from Democrats. The White House is playing a game of chicken, insisting it won’t budge. Biden’s press secretary Karine Jean-Pierre told reporters on Monday that the White House feels members of Congress “must act” as part of “their constitutional duty,” and that is what Biden “is going to make very clear with the leaders tomorrow.” She did not talk up the president’s willingness to negotiate: “I wouldn’t call it ‘debt ceiling negotiations,’” she explained, describing the meeting as a “conversation” 15 different times during Monday’s briefing. HOW DO WE GET OUT OF THIS? Regardless of how Tuesday’s showdown goes, the question on most Americans’ minds is probably, “What pathways allow the country to emerge from this?” There are several. Two are obvious:
Another crazy pathway is for the Biden administration to use executive action to bypass the debt limit. This wouldn’t involve a coin worth a trillion dollars, but it would still be an action without historical precedent and could involve the government making some drastic move, such as declaring the debt limit unconstitutional. These options would almost certainly wind up in court, but recent reports have claimed that the White House is mulling them, anyway. WHY THIS FEELS SO FAMILIAR Debt-ceiling negotiations in the past have been dragged out to the 11th hour, sometimes literally hours before a default. The White House press secretary made clear in her statements that neither side is necessarily expecting to reach a deal Tuesday. We’ll just have to stay tuned to see what happens next.
| The text being discussed is available at | https://www.fastcompany.com/90893949/debt-ceiling-deadline-crisis-explained-what-happens-us-default and |