The US government is springing into action to prevent the country from going into default, which is the US asking forgiveness on its debt, the equivalent of a regular person filing for bankruptcy. If a default takes place, it would be the first in the nation’s history, which would cause bad blood between the US and its allies and necessitate serious budget cuts to programs such as Social Security and Medicare.
On May 1, Yellen sent a letter to Speaker of the House Kevin McCarthy warning him about the debt crisis and advising that Congress take action immediately. “After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” it stated.
It’s no secret that the US government has been struggling with its massive debt for many years, but it has reached a catastrophic level. The United States debt limit is currently $31.4 trillion, a limit that was reached on Jan. 19 due to the government’s continuous massive spending.
If no action is taken, the United States may be forced to default, which would do massive damage to both US foreign diplomacy and valuable government programs. This shows US allies that the country is not responsible with its money, and might cause them to be hesitant to loan the US money in the future. Additionally, a default would force massive budget cuts for programs such as Social Security, Medicare and even the military, all of which provide invaluable services for millions of Americans, so clearly, action must be taken.
The issue is that Congress is almost equally divided between Democrats and Republicans, and neither party is willing to compromise, which has left matters at a standstill.
Democrats want a “clean” bill that will raise the debt ceiling even higher to buy themselves more time to pay it off before a default. They are in favor of raising the actual dollar amount in order to allow the government the ability to keep extremely beneficial programs while avoiding a default all together.
However, Republicans don’t like this plan because they believe passing the bill would force their political party to make concessions on future proposed bills. With 16 Republicans in the House who adamantly disagree with raising the debt ceiling, this disagreement is leaving Congress in a stalemate.
Yellen is also pushing for a “clean” bill from an economic standpoint, as her biggest concern is the welfare of the American economy as well as the average citizen. “We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” she wrote in her letter. “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”
Congress doesn’t have a lot of time to resolve this crisis. The House and Senate run on different calendars, so while the Senate has 13 working days from now until June 1, the House only has 12. To make matters worse, only eight of those working days intersect before the Senate leaves for a Memorial Day recess, returning between May 30 and 31 with only one to two days before the big deadline.
Simultaneously, between finding compromises, McCarthy doesn’t want to jeopardize his position as Speaker. When he became the Speaker of the House, McCarthy had to accept a rule that allowed any one of the House members to force a vote on whether or not to remove him from his position. In essence, he can be kicked out at any time. And since the House majority are Republicans, he is wary of approving a Democratic bill for risk of losing his esteemed position.
One other potential difficulty may be the lack of fiscal education among the current members of Congress, especially in the Republican party. Senators Rob Portman and Pat Tooney, both of whom were well versed in fiscal responsibility, have both retired, leaving many remaining Republicans less trained in economic matters.
However, despite all of these setbacks, some progress is still being made. Majority Leader Chuck Schumer began negotiations in the Senate on the night of May 1, the same day that Yellen sent out her foreboading letter. Two separate measures were proposed, though neither of them have passed yet. One of these was a Democratic plan to suspend the debt ceiling until Dec. 31, 2024. This is a more favorable plan than their alternative, as it’s likely to garner more Republican votes and postpone the issue until after the next election. A House-passed Republican bill was also put on the floor, although it’s currently unclear what this bill will do.
The White House is also taking action, as President Biden has called an urgent meeting between himself, McCarthy and Senate Minority Leader Mitch McConnell to discuss the US budget. However, according to White House Press Secretary Karine Jean-Pierre, Biden will not be negotiating the pressing issue of the debt ceiling at all during the meeting. Instead, Biden wants to take preventative measures to lower the country’s spending in a way that both parties will agree to.
Until the right and the left can come to a solid compromise, the issue of the debt ceiling is still up in the air. Although it’s unclear what path Congress will take on resolving this issue, they must come up with a solution quickly before they hit the June 1 deadline. Otherwise, the United States may not only have a massive financial crisis on its hands, but also lose global respect among its allies and its enemies.
Prothsa Shekar • Sep 10, 2023 at 1:35 pm
I never thought that the US government is negotiating to raise or suspend the $31.4 trillion debt limit to prevent default, despite setbacks, to protect foreign diplomacy and the government programs.