Biden Administration Lays Out Consequences of Debt Default
WASHINGTON — President Joe Biden detailed on Monday the ramifications of failing to raise the United States government’s debt limit while condemning Republicans in Congress for their role in the procedural delay.
Congress has until Oct. 18 to raise the debt limit or else run the risk of draining the Department of the Treasury’s cash balance to an insufficient level and defaulting, according to Treasury Secretary Janet Yellen. The debt ceiling has been suspended or raised 78 times since 1960, but Republican lawmakers are determined to let their Democratic colleagues take ownership of the process this time around.
Treasury officials and economists agree that failing to alter the current debt limit would produce widespread economic fallout. Since the reinstatement of the debt limit in August, the Treasury department utilized a series of measures to keep the government solvent but will not be able to continue without congressional action, TWN previously reported.
“As soon as this week, your savings and your pocketbook could be directly impacted by this Republican stunt. It’s as simple as that,” Biden said. “Republicans say they will not do their part to avoid this needless calamity. So be it… It’s one thing to pay our debts already acquired. It’s another to require a supermajority to pay the debts already acquired. It’s not right.”
In his remarks, Biden pointed out that in four years under the Trump administration almost $8 trillion was added to the national debt and Republican lawmakers raised the ceiling three times. Biden added that raising the debt ceiling has nothing to do with his infrastructure plans, but it does fortify the “full faith and credit of the United States.”
Should the U.S. become insolvent later this month, it would impact millions of seniors who receive Social Security checks, monthly child tax credit payments to households, salaries of federal employees, veterans’ benefits and the salaries of military personnel, according to the Treasury Department. Further, downgrades of U.S. credit ratings would cause the demand for Treasury bonds to plummet and lead to higher borrowing costs for mortgage rates, car loans, and credit cards that are generally tied to yields on Treasury notes.
Despite the consequences of failing to act on the debt ceiling, Republicans remain firm in their positioning and are prepared to let Democrats shoulder the responsibility. Senate Minority Leader Mitch McConnell, R-Ky., sent a letter to Biden on Monday reaffirming his party’s position and insisting they would not give Democrats “a shortcut around procedural hurdles.”
“Bipartisanship is not a light switch that Speaker Pelosi and Leader Schumer may flip on to borrow money and flip off to spend it,” McConnell said in the letter to Biden.
McConnell continued, “Democrats do not need our consent to set a vote at 51 instead of 60. Nonpartisan experts confirm that Senate Democrats have every necessary tool to pass a standalone debt limit increase through reconciliation and enough time to do it before late October. As I have warned for months, this is the path they will need to take.”
In the past, Congressional leaders in both parties have conceded that permanently raising, temporarily extending or revising the definition of the debt limit has been necessary to avoid drastic economic consequences. The debt limit has been altered in some way 49 times under Republican presidents and 29 times under Democratic presidents.
In a press briefing on Monday with reporters, White House Press Secretary Jen Psaki said $676 billion has been added to the national debt during the Biden administration while contrasting it with the nearly $8 trillion added during the Trump administration. In total, the U.S. national debt now stands at approximately $28.4 trillion.
“So what Senator McConnell is refusing to do is to pay the debts that were rung up under his leadership when he was in the Senate — still continues to be, of course — and when Trump was president,” Psaki said. “The debt limit is about paying for bills we have already spent. It is not about initiatives that we’re talking about and debating now.”
The vast majority of the public debt — approximately 80% — is owed to U.S. citizens, according to Department of the Treasury statistics. Japan and China comprise the two largest foreign holders of U.S. debt at roughly $1.31 trillion and $1.07 trillion, respectively.
Merely raising the debt limit by itself does not permit new spending commitments, it allows the federal government to finance existing legal obligations made in the past by Congress and previous administrations, according to the Treasury Department. If the country defaults on its debts for the first time in history, it would all but guarantee another economic recession to recover from.
The cost of inaction on the debt ceiling means ceding the human capital the nation needs to compete globally, failing to address the mounting threats of climate change and creating further risks to the economy, and ceasing to address long-standing inequities that limit economic opportunities for U.S. citizens, Yellen said in remarks to the National Association for Business Economics last month.
“Though not without risks and trade-offs, President Biden’s vision will allow us to make public investments needed to grow our economy, enhance competitiveness, create good jobs, and make our economy more sustainable, resilient, and inclusive,” Yellen said. “Let me be clear: we have no time to waste. There is no better time than today to act boldly to ensure a more prosperous and sustainable future for Americans.”
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