(LibertySons.org) – The country faces a potential economic crisis as Republicans and Democrats wrangle to raise the debt ceiling. As the deadline looms, Senators admit they may cancel their planned Memorial Day recess to hammer out a deal.
What Is the Debt Ceiling?
Congress has limited the maximum amount the US government can borrow to pay for outstanding debts and existing financial commitments — the debt ceiling — since 1917. Raising the debt ceiling doesn’t commit the nation to increased financial obligations. That happens when Congress spends money, accruing new debt during the budget cycle. Instead, the debt ceiling is reactionary because it reflects previously enacted spending and revenue decisions.
The Treasury Department has set a tentative deadline of June 1 before the nation could run out of money to meet its commitments. To date, the US has never defaulted on its debts because Congress has always raised or suspended the debt ceiling.
Why Does It Matter?
According to experts at the Brookings Institute, even a short Congressional impasse causing a default could cause sustained and “completely avoidable” economic damage in the US and globally. Currently, the US pays a lower interest rate on debt because of its historic liquidity. However, a default could result in higher interest rates going forward, costing the government as much as $50 billion more in interest next year and as much as $750 billion more over the next decade.
The Council on Foreign Relations evaluated the potential damage slightly differently, reporting that the cost of an average 30-year mortgage would increase by $130,000. At the same time, the nation could suffer as many as three million job losses and an overall increase in the national debt of around $850 billion. In addition, Goldman Sachs predicted a default would bring at least a tenth of the US economy to a screeching stop, resulting in a nearly immediate recession.
Why Timing Matters
Senators look forward to the spring break ahead of Memorial Day, scheduled from May 19 through May 29 this year. It provides legislators time to work on issues in their home districts between the Easter and the Fourth of July breaks. However, Sens. John Thune (R-SD) and Kevin Cramer (R-ND) anticipate scrubbing some or all of the holiday to negotiate a debt ceiling deal with Senate leader Chuck Schumer (D-NY) and President Joe Biden, hoping to meet the June 1 deadline set by Treasury Secretary Janet Yellen.
After a Tuesday, May 9, meeting between Congressional leaders and President Biden, Sen. Mitch McConnell (R-KY) told the press that Congress wouldn’t allow the nation to default on its debt. Still, House Speaker Kevin McCarthy (R-CA) refused to make that commitment.
McCarthy and House Republicans recently passed the Limit, Save and Grow Act, seeking budget concessions, including cuts to federal discretionary spending, a recapture of unspent pandemic relief funds, new work requirements for welfare recipients, and the expansion of mining and fossil fuels production in exchange for a moderate $1.5 trillion increase of the debt ceiling until March 31, 2024. So far, Senate Democrats and Biden have rejected budget-based concessions.
Negotiations are continuing.
~Here’s to Our Liberty!
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