In the midst of a political impasse between President Joe Biden’s Democrats and the Republican-controlled House of Representatives that may trigger a fiscal crisis in the coming months, the United States government reached its $31.4 trillion borrowing limit on Thursday.
Speaker of the House Kevin McCarthy was informed by Treasury Secretary Janet Yellen that her agency had started using extraordinary cash management measures to prevent default until June 5.
With a newly elected majority in the House, Republicans want to pressure Biden and the Democratic-controlled Senate to cut spending before the Treasury’s emergency measures run out.
Due to the difficulty of predicting payments and government revenues months in advance, Yellen cautioned that the June deadline was subject to “considerable uncertainty.”
In a letter to congressional leaders on Thursday, Yellen said, “I respectfully urge Congress to act promptly to protect the full faith and credit of the United States.”
However, there was no indication that either the Republicans or Biden’s Democrats would budge.
In order to prevent default should the cap be exceeded during negotiations, Republicans are pursuing a “debt prioritization” plan that would ask the Treasury to give debt payments and possibly other priorities like Social Security and Medicare top priority. By the end of March, Republicans hope to have the legislation finished.
On Thursday, Brian Deese, director of the White House National Economic Council, emphasized the dangers posed by the uncertainty surrounding whether the United States will uphold its obligations to both its domestic economy and its international standing.
“It’s not that difficult, really. New initiatives or opportunities are not the focus of this. It’s important to fulfill the commitments that this nation has already made “Deese stated in a CNN interview.
Risk-taking has sparked worries in Washington and on Wall Street about a bloody battle over the debt ceiling this year that could be at least as disruptive as the protracted battle in 2011, which resulted in a downgrade of the U.S. credit rating and years of forced domestic and military spending cuts.
“We won’t let the debt go into default. We are able to handle interest payments and servicing. However, we also shouldn’t blithely raise the debt ceiling “Leading conservative lawmaker Chip Roy told Reuters.
Roy dismissed worries about volatile markets and the possibility of a recession.
“That’s what they always say. It’s as if by magic “In an interview, Roy stated. “We’re already on the verge of a recession. The question is what it will look like unless the combination of monetary and fiscal policy saves us from our foolishness in spending so much money.”
The statutory cap on the amount of debt the government can issue was established by Congress in 1939 with the intention of preventing further growth. In practice, Congress has treated the annual budget process, which involves deciding how much money to spend, separately from the debt ceiling, essentially agreeing to pay the costs of previously approved spending, so the measure has not had that effect.
It won’t be until lawmakers return to Washington next week that discussions on debt prioritization and spending are expected to pick up steam.
By capping discretionary spending at 2022 levels and using House oversight to identify federal programs that can be eliminated or scaled back in spending bills that are anticipated to emerge from the House Appropriations Committee later this year, the Republican plan calls for balancing the federal budget in 10 years.
House Republicans have vowed to oppose broad government funding bills from Senate Majority Leader Chuck Schumer, similar to the bipartisan omnibus bill that Congress passed late last year and was worth $1.66 trillion.
Officials from the White House also point out that during Republican Donald Trump’s administration, Republicans in Congress supported a number of debt ceiling increases.
Republican Representative Ben Cline, who is in charge of a conservative task force on the budget and spending, said, “We are optimistic that Democrats will come to the table and negotiate in good faith.” “When it comes to actions that can be taken to address the fiscal crisis that we are in, there is a lot of room for negotiation.”