The meetings between President Joe Biden and House Speaker Kevin McCarthy on Wednesday are about more than just a power struggle in Washington.
If the two most powerful leaders in Washington cannot reach an agreement to raise the debt ceiling before the Treasury runs out of money to pay its debts, the United States, the world’s legendary economic safe haven, may default.
Every American might be harmed in the ultimate display of how party politics, including growing right fanaticism, is endangering the country’s ability to govern itself and could consign it to self-destruction.
Because the government often spends more than it receives in revenue, it must borrow money to pay on promises made by Congress.
As a result, if Congress do not provide more financing authority by mid-summer, Social Security retirement payments may be jeopardised. Veterans may lose important health and living benefits. Americans with 401(k) money invested in stocks could see their savings plunge in the event of a global market crash. Consumer borrowing costs would almost certainly rise as well, potentially throwing the economy into a recession that would stifle job growth and bring widespread unhappiness.
For days, the Republican speaker and Democratic president have been ratcheting up the tension by burrowing into positions from which it will be difficult to retreat. Both parties are effectively betting that the penalties of failure will be so heinous and politically disastrous that the other side will flinch first. But what makes this game of economic Russian roulette so terrifying is that, just maybe, both sides will hold fast.
McCarthy enters Wednesday’s meeting with the notion, partly based on the language of his right-wing House majority and his own planning, that he is there to bargain. However, Biden claims that negotiating on such a precipice is impossible, and he is rejecting GOP proposals for massive spending cutbacks in exchange for increased borrowing capacity. This is not the first time the country’s reputation for paying its payments has been called into question. Following a debt ceiling impasse in 2011, credit ratings firm Standard & Poor’s reduced the country’s outstanding rating marginally, citing dysfunctional US policymaking.
Americans should be especially concerned right now because the usual idea that everything will be resolved after the typical 11th-hour brinkmanship is looking increasingly shaky. For one thing, McCarthy only became speaker last month after telling hardliners that he’d hold Biden hostage over the debt ceiling. If his tiny Republican majority refuses to vote for more borrowing, or if he seeks Democratic votes to get it done, his speakership may be over.
Furthermore, some Donald Trump-style House Republicans may relish the chaos that would ensue if the debt ceiling is not raised, either because of an ideological aversion to funding the government itself or because a wounded Biden could be easier prey for the ex-president if they meet in the 2024 election. Given these dynamics, as well as McCarthy’s own makeover into a “Make America Great Again” Republican, he may be tempted to stand with the conference’s extremists. Still, their sudden fiscal discipline appears hypocritical given that they voted for many debt ceiling increases while Trump was growing the budget.
Americans have had a difficult time. A worst-in-decade epidemic, school disruption, more than a million Covid-19 deaths, an insurgency inspired by Trump’s electoral lies, and an economic catastrophe have left the country drained and dejected. But there is hope. Job growth is strong, inflation is easing, and with the S&P 500 index up 6% year to date, the anticipated 2023 recession may not occur or may be brief.
A self-inflicted wound now, regardless of who is primarily to blame, would be far too much.
However, this would not be the first time in recent history that an excessive ideology has destroyed an economy. Despite warnings, then-British Prime Minister Liz Truss released a mini-budget last year adopting far-right conservative economic orthodoxy, including huge tax cuts. The markets reacted negatively, the pound fell, and there was widespread condemnation, notably from Biden. Truss was forced to abandon her idea, but many Britons paid dearly as their mortgage payments skyrocketed. She resigned as Conservative Party leader and left 10 Downing Street a few weeks later.
Could McCarthy’s ambition harm the economy?
The possible consequences from the Biden-McCarthy spat has skyrocketed expectations for their encounter.
Their meeting is critical for McCarthy because he needs to be viewed as standing up to Biden in order to keep the support of the radical GOP majority. Last month, in comical events in which he won the speakership on 15 ballots, the California Republican virtually committed to wrest spending cut concessions from Biden. So it’s reasonable to consider whether McCarthy is jeopardising the economic well-being of tens of millions of Americans in order to further his own objectives.
The House speaker, who voted not to certify Biden’s 2020 election victory, is viewed as a weak leader in some quarters of Washington, which may make him feel motivated to turn on theatrics during the meeting. His scenario is similar to his November visit to the White House with fellow congressional leaders following Republicans’ slim House majority in the midterm elections. Outside the West Wing, the then-minority leader put on a dramatic performance, clearly directed at GOP hardliners and even Trump.
“I think the administration got the notion that it’s going to be different,” McCarthy said, lauding the new Republican power in Washington while potentially overstating his own chances.
McCarthy is dismissing accusations that he is a weak puppet of the hardline pro-Trump right. He has vowed not to engage in “political games.” And he blames Biden for his rigidity.
“I’m looking forward to going down with the president and negotiating on how we can save money for the American people,” McCarthy added. “We’ve seen what spending has done, and we’ve seen it (bring) inflation.” “I believe we’ll sit down and negotiate.”
