Anna Moneymaker/Getty Image
- Democrats have insisted that raising the debt ceiling should be bipartisan, without negotiations.
- GOP lawmakers have refused a clean increase, but have yet to produce details on what they want in a deal.
- The US could breach the debt ceiling as soon as July, the CBO estimated.
Right now, Republicans and Democrats are playing a painfully slow game of chicken, each waiting for the other to flinch.
The future stability of the global economic system is at stake. That's because no one seems to be ready or willing to negotiate over how to raise the debt ceiling.
Since Republicans assumed a majority over the House late last year, they have been mulling how to deal with raising the debt ceiling, and keeping the country on top of paying its bills, before the US goes into default. The Congressional Budget Office estimated last month that the debt limit could be breached as soon as July.
The debt ceiling dictates how much money the government can borrow to pay off the expenses it's already approved. It basically means that Congress has to authorize more borrowing to pay off the bills it's already racked up — and, if the debt ceiling isn't raised, the country will then default on those bills.
As Treasury Secretary Janet Yellen has repeatedly warned, failing to raise the ceiling would be catastrophic and unprecedented, but rather than working with Democrats to quickly avoid those consequences, GOP lawmakers have expressed their intent to use the ceiling as leverage to achieve their own priorities — particularly in the form of major spending cuts.
"Since 1789, the United States has paid all of our bills on time. It should stay that way. In my assessment — and that of economists across the board — a default on our debt would produce an economic and financial catastrophe," Yellen said in February.
Speaker of the House Kevin McCarthy has said he wants to continue negotiating with President Joe Biden over conditions to raise the debt ceiling, but he has not yet disclosed what exactly those conditions are.
"Defaulting on our debt is not an option," McCarthy said during remarks last month. "But neither is a future of higher taxes, higher interest rates and an economy that doesn't work for working Americans."
The stalemate has Democratic lawmakers, who want to raise the ceiling without tying it to spending cuts or other conditions, frustrated as the country inches closer and closer to a debt default. On Thursday, Senate Majority Leader Chuck Schumer wrote on Twitter that "the GOP is divided and unable to unite around a plan to raise the debt ceiling. The hard right demands spending cuts. Will they cut Medicaid? Pell Grants? Food for kids?"
"Speaker McCarthy: It's March 2nd, where is your plan?" Schumer wrote.
After meeting with Biden earlier this week, Schumer told reporters that the president "doubled down," and wouldn't accept "hostage taking," per CNN's Manu Raju. Instead, Schumer said "they should just show us their budget."
What we know about GOP spending cuts
Biden and Democratic lawmakers have repeatedly pressed Republicans for a plan to raise the debt ceiling. They haven't provided one yet — but they have floated some ideas that could signal where they might eventually settle for a potential deal.
The one thing Republican lawmakers have made clear so far is that they are keeping cuts to Medicare and Social Security off the table. In January, McCarthy said that those programs will not be included in negotiations, and the GOP House Budget Committee reiterated that they only want to strengthen those programs, not cut spending.
However, the absence of a concrete plan from Republicans has Democrats questioning whether Medicare and Social Security will truly be left unscathed as a debt ceiling deal takes shape.
"You say Social Security and Medicare is off the table, but until the American people see a plan, they cannot take the Speaker at his word," Schumer said on Thursday.
The GOP House Budget Committee put forth a list of ten major areas marked for spending cuts last month, which included ending student-debt relief, placing work requirements on programs like SNAP, and cutting environmental programs.
And former President Donald Trump's budget chief Russell Vought appears to be having an influence in debt ceiling chats, as well. The Washington Post reported that Vought has been pitching his 104-page budget plan, entitled "A Commitment to End Woke and Weaponized Government," to some GOP lawmakers, which includes suggested budget cuts for every federal agency.
Among his proposed cuts are ending the federal student-loan program, cutting funding for housing, and ending CDC programs meant to help prevent chronic diseases.
What happens next
If nothing happens, and nobody blinks, the country will face its biggest financial crisis in history.
If the US defaults on its debt, the stock market would crash. Millions would likely lose their jobs. US Treasury bonds, which are key assets in global finance, would suddenly be plunged into chaos.
"We'd just be setting off a global financial crisis. What happens after that? No one knows," Zachary D. Carter, the author of "The Price of Peace: Money, Democracy and the Life of John Maynard Keynes," previously told Insider.
"I'm just worried that we're going to see the same dynamic play over and over, which is every time it reaches a crisis point, politicians claim to care a lot about it — usually as an excuse to force the other side into some sort of submission," Rohan Grey, an assistant professor at Willamette University College of Law, told Insider. "And then the minute that flash moment is over, we go back to the same dynamic afterwards."
"This is a game of chicken," Grey added. "And a game of chicken requires two people to be doing the same thing, which is driving down a highway facing each other, going a hundred miles an hour, saying, can you believe this guy not getting off the road?"
Some economists — and even legislators — have offered a silly-sounding alternative to sidestep the debt ceiling crisis completely: Minting a trillion-dollar platinum coin. That idea derives from a loophole in the Treasury Department's minting jurisdiction. Technically, the Treasury can mint platinum coins of any denomination. One school of thought believes that Yellen should just mint a trillion-dollar platinum coin, and then deposit it at the Fed to head off any default concerns.
"It should have been time for the coin a month ago," Grey said. When it comes to critiques that the coin is a media stunt, "it is a media stunt to get attention — because they haven't been paying attention up until now."
However, Yellen continues to dismiss the coin and its viability, so it looks like Democrats and Republicans will have to hash out a different way forward.
For now, Biden's administration has maintained that raising the debt ceiling should be done in a bipartisan way, and without negotiations. Republicans raised the ceiling three times under Trump, and the president argued there's no reason this time around should be any different.
"They paid America's bills then, so why won't they pay them now?" Biden said during Wednesday remarks. "Well, they didn't throw the country into a crisis then, and they shouldn't do it now. If they wouldn't inflict pain on the American people then, why would they do it now?"
"Well, the answer is real simple: politics," Biden continued. "I'm not going to be part of it. You know, they've got no business playing politics with people's lives and our economy. Working with all of you, we're not going to let them either."