The fight over the US debt between President Joe Biden and House Majority Leader Kevin McCarthy will determine who is the most powerful man in Washington for the next two years. And failure by the two men to reach an agreement by this time next month would result in a national default, which may have serious consequences for the economy and the 2024 election.
While the most serious human consequences of a default would be felt by millions of Americans in the form of lost employment, benefits, and a diminished sense of economic security, the battle is also about power.
The high stakes explain why a meeting in the Oval Office on Tuesday with Biden, McCarthy, and other top congressional leaders is crucial and will be monitored around the world.
It marks a watershed point in the seemingly strained and superficial relationship between Washington’s two most powerful individuals, and it will help define a period of sharply divided government in the capital. Can a Democratic president and a Republican who controls what is maybe the most radical House majority ever find a way to satisfy both their conflicting political positions? Is this disconnect doomed to cause serious harm to the country?
The ramifications of a US debt default, which could occur as soon as June 1 if Congress does not agree to increase the government’s borrowing ability, would be terrible. The government would have to choose between paying interest on the national debt and paying benefits on which millions of Americans rely. Markets may fall, a recession may emerge, and unemployment may skyrocket. A default would permanently raise interest rates in the United States.
“We simply wouldn’t be able to pay our bills.” And I believe it’s largely agreed that this would be a severe impact to the economy, if not a complete economic disaster,” Treasury Secretary Janet Yellen told CNBC on Monday.
A source familiar with the situation told AWN’s Matt Egan Monday night that Yellen has been calling CEOs and business leaders to discuss the dangers of debt-ceiling brinkmanship.
However, it is precisely the spectre of disaster that makes the debt ceiling confrontation such a powerful tool of political manipulation. Both sides in the standoff appear to believe that the other will blink in order to avoid the horrifying repercussions of falling off a precipice. Worryingly, each party appears to believe the other will cave in order to avoid blame.
Under pressure from a conference packed with extremists and fiscal conservatives, McCarthy is seeking enormous budget cutbacks to curb government spending, ultimately cratering Biden’s agenda on subjects like climate change.
Biden claims that the MAGA Republicans – a term he coined to refer to ex-President Donald Trump’s extremism – are holding the economy hostage by refusing to increase the debt ceiling quickly. He correctly points out that they did not hesitate to do so under his predecessor. He’s willing to talk about government spending, but only as part of a regular budget process, not as part of the US commitment to pay debts made by prior administrations and approved by Congress.
There is no indication that either side is willing to bend heading into Tuesday’s meeting, which also includes Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, and House Minority Leader Hakeem Jeffries, with time running out ahead of the early June date that Yellen has warned about for default.
“There’s no plan B,” Bharat Ramamurti, the National Economic Council’s deputy director, told AWN’s Jake Tapper on Monday.
There are at least three possible consequences from a meeting between McCarthy and Biden. In some respects, the president’s offer and the speaker’s acceptance appear to be a coordinated attempt by both to blame the other for their differences. The theatre on the president’s turf might carry the message that Biden is reasonable while McCarthy is crazy. If no progress is made, the speaker will almost certainly accuse the president of being obstinate.
According to White House officials, Biden is determined to maintain his demand for a clean debt ceiling increase, and the president’s goal is to move spending negotiations onto a separate track, removing the threat of default while assuring Republicans that he will engage in good-faith negotiations about federal spending.
The likelihood of a breakthrough is remote. The aim of the discussion, said to White House press secretary Karine Jean-Pierre, was not “debt ceiling negotiations,” but a broader spending conversation that McCarthy is not ready to undertake.
A clear breakdown in the discussions might frighten the markets while also increasing political pressure on Biden and McCarthy to reach an agreement. A suggestion that they are willing to talk again might encourage speculation that Congress could pass a short-term debt ceiling rise to postpone the problem and give the two sides more time to figure out a solution.
Biden’s stroll on a tightrope
A president has personal aspirations and political obligations, but he also bears a greater duty for the country’s well-being. True political leadership emerges from the junction of these two frequently opposing desires. Biden may be in such a scenario right now. A debt default and its ramifications may be terrible for his recently announced reelection campaign, adding to the issues he is facing, which range from a border crisis to concerns about his age.
But giving in to McCarthy would make him appear weak, which is a damaging image for any president, and would imply that House Republicans can browbeat him for the rest of his tenure.
Biden’s inability to elicit passion from Democratic voters, as evidenced by various polls, means he can’t afford to appear to be dominated by McCarthy. A domestic conflict that permits a Democratic president to depict Republicans as fanatics willing to damage the economy for partisan advantage has historically been a tremendous galvanising force.
So, for governance and political reasons, Biden has every incentive to hold firm, even as tensions and worry about a potential debt default rise. He lacks the votes in Congress to force Republicans to yield. And he maintains that only Congress has the authority to raise the debt ceiling, and that if it does not, Republicans who stand in the way will be held responsible for a catastrophic self-inflicted national tragedy.
“This is a crisis entirely created by House Republicans, who have the ability tomorrow to bring a bill to the floor that would raise the debt limit without conditions,” Ramamurti said, adding that Biden would be ready to address tax and spending policies at that moment.
McCarthy’s much trickier balancing act
McCarthy’s position could be more politically risky than Biden’s. The narrowness of the Republican majority he commands is one reason that makes the situation potentially perilous. Voters concerned about handing the GOP a huge triumph in November due to pro-Trump fanaticism may have accidentally pushed the majority further right.
This is because radicalised Republican lawmakers can now hold McCarthy hostage and extort large concessions. This dynamic was evident in the 15 rounds it took the Californian to win the speakership in January, as well as last month, when the House backed a plan to increase the debt ceiling in exchange for massive spending cutbacks. The measure, which was approved by a single vote, will not be considered by the Democratic-led Senate, and Biden has rejected it.
Even if the GOP’s budgetary discipline appears to kick in only when a Democrat is in the White House, McCarthy does have a mandate to endeavour to execute the views of millions of Republican voters who want to see a reduction in spending.
“The House Republican majority was elected to serve as a check and balance in large part because of the reckless spending engaged in by the Biden administration,” New York Rep. Mike Lawler, who flipped a Democratic seat in the midterm elections, told AWN on Monday.
Biden will specifically target the New York Republican on Wednesday when he visits his area as part of an apparent attempt to pressure more moderate Republicans on the debt issue. Lawler advised the White House to start with the recently passed GOP measure.
“Obviously, the president and the Senate majority do not like it.” That is entirely their prerogative. That is their legal right. But we have a divided government. So we must all work together, come to the table, and have an open discussion.”
Lawler’s remark raises the question of whether Biden’s viewpoint is irreconcilable with the realities of split power in Washington and, as a result, may not be long-term viable.
In more normal political times, it’s not difficult to imagine Biden – a renowned dealmaker in his half-century in Washington – and the speaker offering each other enough concessions to save face and prevent disaster. In a typical Washington ruse, Biden could claim he got a debt ceiling increase without making any sacrifices, while McCarthy could claim he stopped Democratic spending sprees in a parallel budget pact. But in a polarised capital, this is a long way off.
Even if they could reach an agreement, the most frightening component of the crisis remains. McCarthy, who can only afford to lose four votes, may be unable to persuade his erratic and small House majority to comply. And if he tried to pass a bill with Democratic votes, he’d probably lose his job.
As a result, the chances of a breakthrough at Tuesday’s meeting are slim.