‘Tis the season to either feign outrage over the national debt or proclaim that the U.S. government needs to spend more to avoid economic catastrophe. A month after Republicans and Democrats agreed to kick the can down the road, allowing the Treasury Department to swoop in and rescue the administration, Treasury Secretary Janet Yellen is, once again, telling lawmakers that it is high noon for the debt ceiling. If Congress strikes a deal, Washington can put more on Uncle Sam’s credit card. If not, the United States will bear the consequences.
Two Weeks to Stop the Debt Crisis
Yellen, the former Federal Reserve chair, penned a letter to House Speaker Nancy Pelosi (D-CA) informing her that she estimates the federal government will reach its debt limit on Dec. 15. The deadline would be about two weeks later than her initial projection, a revision due to President Joe Biden recently enacting the $1 trillion infrastructure plan and letting Yellen allocate approximately $118 billion to the Highway Trust Fund
That affords Congress additional time to negotiate and either increase or suspend the debt ceiling. However, should both sides fail to reach an agreement, the United States would default on its debt for the first time in its history, potentially resulting in a recession and eroding the dollar’s international reserve currency status.
Yellen wrote in the letter:
“Yesterday, the President signed the Infrastructure Investment and Jobs Act, which appropriates $118 billion for the Highway Trust Fund. These funds must be transferred into the Highway Trust Fund within one month after the enactment of the legislation, and the transfer will be completed on December 15.
While I have a high degree of confidence that Treasury will be able to finance the U.S. government through December 15 and complete the Highway Trust Fund investment, there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the U.S. government beyond this date.”
In early October, Congress approved a stop-gap debt ceiling bump that raised the limit by $480 billion. This allowed the government to pay its bills and avoid default. But, despite warning that it exhausted its “extraordinary measures,” the Treasury had a few tricks up its sleeve and uncovered additional options to pony up some cash.
A Bipartisan Solution
Yellen has urged Republicans and Democrats to work together to establish a bipartisan vote addressing the debt limit. At the same time, the Treasury Secretary has recently suggested Democrats could pull the trigger on a limit hike through their own reconciliation, which the party brass note is not on the table.
“I strongly believe that it is a bipartisan responsibility to do this,” Yellen said on Nov. 1. “There is a way for Democrats to do it entirely on their own,” she added, “and I know that will be one of the ways — through reconciliation — that the leadership will be considering.”
However, both sides have been slamming each other on the debt. Senate Budget Chair Bernie Sanders (I-VT) blamed the astronomical national debt that was “incurred under the Trump administration,” adding that the Republicans need to be responsible. But Senate Minority Leader Mitch McConnell (R-KY) has stated the GOP would not facilitate President Biden’s multi-trillion-dollar spending spree.
But The Hill reports that McConnell and Senate Majority Leader Chuck Schumer (D-NY) have engaged in talks on the debt ceiling and averting heading off a fiscal cliff. McConnell told reporters: “We’ll figure out how to avoid default. We always do.” Schumer also informed the press: “We must pass the debt limit. We cannot let the full faith and credit of this country lapse, and we hope to do it in a bipartisan way.”
See You Soon?
The debt ceiling debates are always great for popcorn-inducing political theater. They have become a fixture of Washington politics, like the permanent faces sitting inside the House and Senate who never leave. And, similarly to these individuals, many Americans do not take it seriously anymore. If it were a dire situation, the financial markets would be selling off, and investors would pour their capital into gold and Bitcoin. President Biden, the Democrats, and Republicans will establish a last-minute deal that raises or suspends the debt limit for a period. Once that date approaches, one side will clutch pearls, and the other will implore for bipartisan consensus to avoid heading off a borrowing cliff. Rinse and repeat.
~ Read more from Andrew Moran.