ON
WASHINGTON
Finger-Pointing Won’t Save Anyone if Default
Leads to Economic Collapse
While each party tries to blame the other for the
crisis, some acknowledge that they would both share responsibility for a
default.
Carl Hulse
By Carl
Hulse
Reporting
from Washington
https://www.nytimes.com/2023/05/19/us/politics/debt-ceiling-economy.html
May 19,
2023
Is it the
Biden default? Or the Republican Default on America?
Even as
negotiators push forward with halting talks to resolve the federal debt-ceiling
standoff, members of both parties are positioning themselves to try to dodge
the blame for the economic fallout if things go south. Democrats lambaste
Republicans for taking the debt ceiling hostage to appease “extreme MAGA”
conservatives bent on shrinking government spending. Republicans hit Democrats
for waiting too long to open talks and not taking G.O.P. demands seriously.
But deep
down — and in some cases not so deep — officials in both parties know they are
all going to pay if they don’t get a deal, the government defaults and
Americans lose money and jobs and confidence about their financial well-being
and future.
“I would
hate to be the politician trying to explain to people when the economy is in
the toilet that it’s not my fault, it’s their fault,” said Senator Lindsey
Graham, Republican of South Carolina. “Yeah, that ain’t going to work. They
will flush us all.”
Polls have
suggested Mr. Graham’s view is correct. A Washington Post-ABC News Poll
released earlier this month shows that the public is divided about who will
bear the blame, with a significant chunk of independents saying the two sides
should share it equally.
And some on
Capitol Hill say the political backlash will be well deserved if Congress and
the White House manage to mangle the situation so badly that public officials
careen into a completely avoidable crisis and send both the economy and the
retirement accounts of millions of Americans reeling.
What is the
debt ceiling? The debt ceiling, also called the debt limit, is a cap on the
total amount of money that the federal government is authorized to borrow via
U.S. Treasury securities, such as bills and savings bonds, to fulfill its
financial obligations. Because the United States runs budget deficits, it must
borrow huge sums of money to pay its bills.
The limit
has been hit. What now? America hit its technical debt limit on Jan. 19. The
Treasury Department will now begin using “extraordinary measures” to continue
paying the government’s obligations. These measures are essentially fiscal
accounting tools that curb certain government investments so that the bills
continue to be paid. Those options could be exhausted by June.
What is at
stake? Once the government exhausts its extraordinary measures and runs out of
cash, it would be unable to issue new debt and pay its bills. The government
could wind up defaulting on its debt if it is unable to make required payments
to its bondholders. Such a scenario would be economically devastating and could
plunge the globe into a financial crisis.
Can the
government do anything to forestall disaster? There is no official playbook for
what Washington can do. But options do exist. The Treasury could try to prioritize
payments, such as paying bondholders first. If the United States does default
on its debt, which would rattle the markets, the Federal Reserve could
theoretically step in to buy some of those Treasury bonds.
Why is
there a limit on U.S. borrowing? According to the Constitution, Congress must
authorize borrowing. The debt limit was instituted in the early 20th century so
that the Treasury would not need to ask for permission each time it had to
issue debt to pay bills.
“I can’t
comprehend that anyone who had the ability to prevent this much damage to our
country, our economy and our world standing would allow that to happen,” said
Senator Joe Manchin III, Democrat of West Virginia, who had been among those
pressing his party to engage in negotiations earlier. “It would be absolutely
reprehensible. Everyone should get hammered.”
But those
likely reverberations haven’t yet motivated negotiators to come to an agreement
and clear the way for an economic sigh of relief. Representative Garret Graves
of Louisiana, the point man for House Republicans in the talks, abruptly exited
a Friday negotiating session with administration representatives in the
Capitol, accusing them of being “unreasonable,” and the talks were temporarily
suspended. Suddenly, the path to a quick agreement that Speaker Kevin McCarthy
had seen on Thursday was newly cluttered with obstacles. By the evening, talks
had resumed.
Such ups
and downs in budget negotiations are fairly standard and can be performative as
well as substantive. Both sides need to flex to show their respective forces
that they are hanging tough and pushing for all they can get. But there are
real differences in the positions of Democrats and Republicans on a host of
issues on the bargaining table. A positive outcome is no certainty, despite
regular high-level assurances that the United States cannot and will not
default in the coming days.
Still,
should that occur, lawmakers and administration officials would like you to
know that they didn’t do it.
“Here we
are on the brink of a Biden default,” Senator Shelley Moore Capito, Republican
of West Virginia, declared this week both in person and via news release,
sounding a refrain becoming increasingly popular with Republicans — that this
was all Mr. Biden’s doing because he refused to engage with them earlier and
allow enough time to work out an agreement.
Not so,
counter the Democrats. “We find ourselves in the midst of a G.O.P.-manufactured
default crisis because House Republicans have chosen to try and hold our
economy, our small businesses, everyday Americans hostage to unreasonable
ransom demands,” Representative Hakeem Jeffries, Democrat of New York and the
minority leader, said.
Republicans
have a retort. They argue that since they squeezed legislation through the
House last month that would raise the debt limit and enact spending cuts, they
have bragging rights as well as immunity from any criticism because they are
the only ones who have acted thus far — though it was widely known the bill
could never pass the Democratic-majority Senate.
“I don’t
know how we own it if we raised the debt limit,” Mr. McCarthy said at the White
House when asked if he was ready to face the consequences for a default. His
colleagues share his view.
“In my
district I don’t think it would be a huge problem,” said Representative Tom
Cole, Republican of Oklahoma. “I did vote to raise the debt ceiling. Show me
one person on the other side who did.”
In
addition, Republicans know it is traditionally the president who gets credit or
fault for the state of the economy even if circumstances are well beyond
control of the executive branch.
Democrats
scoff at the Republican claims. Senator Chuck Schumer, the New York Democrat
and majority leader, dubbed the House legislation the Default on America Act,
to try to capture both its impact and its dead-on-arrival status in the Senate.
He and his fellow Democrats say they refuse to reward Republicans for what they
view as highly irresponsible actions that are putting the nation’s economy at
risk — even though both parties have used the debt limit for bargaining
leverage over the years.
“From the
beginning, Democrats have said — I have said — that this process demands
bipartisanship,” Mr. Schumer said this week. “It’s how we avoided default under
President Trump. It’s how we have avoided default under President Biden, and
it’s how we should avoid default this time too. Brinkmanship, hiding plans,
hostage-taking — none of that will move us closer to a solution.”
The two
parties can continue to trade shots. But until they trade negotiating positions
they can come to terms on, the threat of default hangs over Washington and the
nation. And if that happens, those involved may find that the public won’t
distinguish between who did or said what when, but will hold them all
accountable.
Carl Hulse
Carl Hulse
is chief Washington correspondent and a veteran of more than three decades of
reporting in the capital. More about Carl Hulse
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