WASHINGTON, D.C. — Fights over increasing the nation’s borrowing authority have been contentious in Congress, yet follow a familiar pattern: Time and again, lawmakers found a way to step back from the brink before markets began to panic and the nation risked a dangerous default on its debt.
But this year’s fight has a different feel, some lawmakers say.
“Very worried. Very worried,” was how Rep. Patrick McHenry, R-N.C., a close ally of Speaker Kevin McCarthy, described his outlook. “And frankly, I don’t see how we get there at this point. There’s no process set up, there’s no dialogue, there’s no discussion.”
The political conditions are comparable to 2011, when a new Republican majority swept into power after a resounding election win and was determined to confront a Democratic White House and extract major spending cuts in return for a debt limit increase.
To resolve that stalemate, Congress passed and President Barack Obama signed the Budget Control Act. The bill temporarily allowed borrowing to resume, set new spending limits and created a bipartisan “supercommittee” to recommend at least $1.2 trillion more in deficit reduction over 10 years. Republicans and Democrats on the panel failed to compromise, however, triggering automatic reductions in spending.
But some damage was done. Standard & Poor’s Ratings Services downgraded U.S. debt for the first time that year because it lacked confidence political leaders would make the choices needed to avert a long-term fiscal crisis.
In 2013, Obama took a different tack. He made clear early on there would be no negotiations on must-pass legislation to prevent a U.S. default, and he never wavered.
A partial government shutdown, which began Oct. 1, swiftly coincided with the prospects of a default. On Oct. 16, Congress passed legislation to end the twin threats and GOP lawmakers who demanded to roll back Obama’s signature health care law got nothing for their efforts. “We fought the good fight. We just didn’t win,” conceded then-House Speaker John Boehner.
Republicans say they are determined that Biden, who was Obama’s vice president during both of those debt ceiling battles, will have to follow the path set in 2011 — not the one set in 2013.
Breaching the debt ceiling is different than a federal government shutdown. The government can continue to operate once the Treasury has exhausted its cash-on-hand. But outgoing payments would be limited to incoming revenue. Not all payments could be made on time and in full. Many fear such an event would shake the foundations of the global financial system.
Treasury Secretary Janet Yellen has said the government may be unable to pay all its bills as soon as June. Mark Zandi, chief economist at Moody’s Analytics, told a House panel this week the so-called X Day is likely to occur in mid-August. He said market pressures will likely build after Congress returns from its July 4th recess.
“As we can see from recent events given the banking crisis, the system is very fragile at this point in time,” Zandi said. “Adding the debt limit as an issue for investors would be particularly inopportune.”
He said there would be immediate and long-term consequences from a default.
“I think under any scenario, we would go into recession, it would be severe, financial markets would be upended,” Zandi said.
The focus on the debt limit, now at about $31.4 trillion, intensified with McCarthy sending a letter to Biden warning that his position of not negotiating “could prevent America from meeting its obligations and hold dire ramifications for the entire nation.”
In a formal response, Biden signaled that he would not be willing to meet directly with the speaker until House Republicans released their own budget plan, which he asked McCarthy to do before lawmakers left Washington for the Easter recess.
“As I have repeatedly said, that conversation must be separate from prompt action on the Congress’ basic obligation to pay the Nation’s bills and avoid economic catastrophe,” Biden wrote.
The letters did not appear to generate any progress or good will. Republicans left town without proposing a budget. And McCarthy accused Biden of making the decision to put the economy in jeopardy, while seemingly making a crack about the president’s age.
“I don’t know what more I can do and how easy. I would bring the lunch to the White House. I would make it soft food if that’s what he wants,” McCarthy said, prompting laughter from other Republicans in the room.