WASHINGTON — Representative Kevin McCarthy of California finally secured the House speakership in a dramatic middle-of-the-night vote early Saturday, but the deal he struck to win over holdout Republicans also raised the risks of persistent political gridlock that could destabilize the American financial system.
Economists, Wall Street analysts and political observers are warning that the concessions he made to fiscal conservatives could make it very difficult for Mr. McCarthy to muster the votes to raise the debt limit. That could prevent Congress from doing the basic tasks of keeping the government open, paying the country’s bills and avoiding default on America’s trillions of dollars in debt.
The speakership battle suggests President Biden and Congress could be on track later this year for the most perilous debt-limit debate since 2011, when former President Barack Obama and a new Republican majority in the House nearly defaulted on the nation’s debt before cutting an 11th-hour deal.
“If everything we’re seeing is a symptom of a totally splintered House Republican conference that is going to be unable to come together with 218 votes on virtually any issue, it tells you that the odds of getting to the 11th hour or the last minute or whatever are very high,” Alec Phillips, the chief political economist for Goldman Sachs Research, said in an interview Friday.
The federal government spends far more money each year than it receives in revenues, producing a budget deficit that is projected to average in excess of $1 trillion a year for the next decade. Those deficits will add to a national debt that topped $31 trillion last year.
Federal law puts a limit on how much the government can borrow. But it does not require the government to balance its budget. That means lawmakers must periodically pass laws to raise the borrowing limit to avoid a situation in which the government is unable to pay all of its bills, jeopardizing payments including military salaries, Social Security benefits and debts to holders of government bonds. Goldman Sachs researchers estimate Congress will likely need to raise the debt limit sometime around August to stave off such a scenario.
Raising the limit was once routine but has become increasingly difficult over the past few decades, with Republicans using the cap as a cudgel to force spending reductions. Their leverage stems from the potential damage to the economy if the limit is not increased. Lifting the debt limit does not authorize any new spending; it just allows the United States to finance existing obligations. If that cap is not lifted, the government would be unable to pay all of its bills, which include salaries for military members and Social Security payments.
The exception to the debt-limit drama was the four years of Donald J. Trump’s presidency, when Republicans largely abandoned their push to tie increases in the limit to cuts in federal spending. In 2021, Senate Republicans clashed with Mr. Biden as the deadline for raising the limit approached, but those lawmakers ultimately helped Democrats pass a law increasing the cap.
Some Democrats pushed to avoid this scenario last year, when it became clear that their party would likely lose at least one chamber of Congress. They hoped to raise the limit again in the lame-duck session of Congress after the November elections that delivered House control to Republicans, to avoid any chance of a default before the 2024 presidential election. But the effort never gained traction.
As a result, the next round of debt-limit brinkmanship could be the most fraught on record — as evidenced by the battle over the speakership. Conservative Republicans have already made clear that they would not pass a debt-limit increase without significant spending curbs, likely including cuts to both spending on the military and on domestic issues not related to national defense.
Their power stems from the fact that Republicans hold a more narrow majority than they did following the 2010 midterms, which empowered the conservative holdouts who opposed Mr. McCarthy. Among that group’s demands were a push for steep cuts in federal spending and a balancing of the federal budget within a decade without raising taxes.
Mr. McCarthy appeared to agree to those demands, pledging not to raise the debt limit without major spending reductions — including efforts to reduce spending on so-called mandatory programs, which include Social Security and Medicare — in a deal that brought many holdouts into his camp.
A speaker who violated that deal could risk being overthrown by the Republican caucus in the House. But Mr. Biden and his party’s leaders in the Democratic-controlled Senate have vowed to fight those cuts — particularly to social safety net programs. That could mean a prolonged standoff that goes on so long the government runs out of money to pay its bills.
Staunch budget hawks in Washington have long argued that the United States needs to stop spending — and borrowing — so much money and that nation cannot afford its long-term debt. They have pushed for a variety of ways to reduce the growth in long-term spending, including cuts to health care for the poor and for older Americans. And many have called for ending some tax breaks while ensuring that the wealthiest and corporations pay more.
Yet most of those fiscal hawks have called the Republican spending demands reckless and likely to produce stalemates on key fiscal issues.
“Their specific ask of balancing the budget in 10 years is just totally unrealistic. It would take $11 trillion in savings,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget in Washington, which has long pushed lawmakers to reduce future deficits through spending cuts and tax increases.
“I want to save more money than a lot of people,” Ms. MacGuineas said. “But what they’re demanding is just not achievable.”
Hurtling toward a deadline for raising the debt limit would sow chaos in financial markets, including for stocks and Treasury bonds, Mr. Phillips said. If Congress failed to raise the debt limit and the government became unable to borrow more money, Mr. Phillips said, America would suffer a sudden decrease in federal spending equivalent to as much as one-tenth of all daily economic activity.
“This does not feel like a false alarm,” he said.
In 2011, Republicans and Mr. Obama agreed on a deal to raise the debt limit that also imposed future limits on domestic spending increases. Ms. MacGuineas, Mr. Phillips and other analysts expressed skepticism that negotiations between Mr. Biden and House Republicans would do the same this time, in part because the faction that blocked Mr. McCarthy’s ascent this week appears unwilling to compromise for significantly more modest concessions from Democrats.
Administration officials have given no indication that they would negotiate with Republicans over a debt-limit increase at all — nor that they were preparing for the possibility of a House speaker refusing to put a debt-limit increase to a vote without steep spending cuts.
Karine Jean-Pierre, the White House press secretary, told reporters in a briefing on Friday that Mr. Biden expected Congress to raise the debt limit again with no strings attached.
“We have said that we should not be using the debt ceiling as a matter of political brinkmanship,” she said. “We’ve been very clear. If you look at what Republicans in Congress did three times — three times during the Trump administration — is that they were able to deal with it in a way that was responsible, right? They voted three times, again, to lift the debt ceiling. And so Congress must once again be responsible.”
Moderate lawmakers have already begun floating possibilities for how the House might raise the limit. One long-shot idea: a so-called discharge petition signed by a majority of the House to force a vote on a bill. Such a move would presumably rely almost entirely on Democratic votes with a few Republicans joining in. But that outcome is far from guaranteed; it would require extensive coordination by both sides and expose defecting Republicans to punishment and primary challenges.
Still, Representative Brian Fitzpatrick, Republican of Pennsylvania, embraced the possibility of such a compromise this week in an interview with CNN. “There is a number of options to circumvent leadership,” he said. “There is not a ton. But there are options at our disposal.”
The post Speaker Drama Raises New Fears on Debt Limit appeared first on New York Times.
FAQs
What is the current US debt limit? ›
The amount is set by law and has been increased or suspended over the years to allow for the additional borrowing needed to finance the government's operations. On December 16, 2021, lawmakers raised the debt limit by $2.5 trillion to a total of $31.4 trillion.
How many times has Congress raised the debt limit? ›Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.
When was the last time the debt ceiling was raised? ›The Senate voted to raise it on October 7, 2021, but only to grant the U.S. Treasury authority to borrow money until that December. That month, Congress voted to increase it by $2.5 trillion, which President Biden signed into effect on December 16, 2021. At that point, it was set at about $31.4 trillion.
What is the debt ceiling crisis? ›A potential debt-ceiling crisis in the United States began unfolding on January 19, 2023, when the United States hit its debt ceiling. It is part of an ongoing political debate in the United States Congress about federal government spending and the national debt.
What happens if the U.S. has too much debt? ›A U.S. debt default is much more than the federal government simply not paying its debt. It would greatly impact the economy and people in the U.S: A default would increase interest rates, which would then increase prices and contribute to inflation.
What happens if the U.S. goes into too much debt? ›If the debt ceiling binds, and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession. The economic effects of such an unprecedented event would surely be negative.
Who controls most of the US debt? ›Domestic Holders of Federal Debt
The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.
The public holds over $24.53 trillion of the national debt, as of January 2023.1 Foreign governments hold a large portion of the public debt, while the rest is owned by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and holders of savings ...
When was the last time the US defaulted on debt? ›The U.S. has never reached the point of default where the Treasury was incapable of paying U.S. debt obligations, though it has been close on several occasions. The only exception was during the War of 1812 when parts of Washington D.C. including the Treasury were burned.
Has the US government ever defaulted on its debt? ›Since the United States has never defaulted on its obligations, the scope of the negative repercussions related to a default are unknown but would likely have catastrophic repercussions in the United States and in markets across the globe. How is the debt ceiling different from a government shutdown?
Which presidents paid off the national debt? ›
On January 8, 1835, president Andrew Jackson paid off the entire national debt, the only time in U.S. history that has been accomplished.
What happens if the US defaults on national debt? ›The U.S. defaulting on its debt would threaten the value of bonds, equities, and the U.S. dollar, which would unfurl in the global market already saddled with high inflation and interest, potential recession, and multiple geopolitical crises.
Where does the US debt come from? ›The national debt is the sum of a nation's annual budget deficits, offset by any surpluses. A deficit occurs when the government spends more than it raises in revenue. To finance its budget deficit, the government borrows money by selling debt obligations to investors.
How much money does the US owe China? ›2021, China owns $1.095 trillion of the total $28 trillion U.S. national debt.
Why is the US in debt? ›Since the government almost always spends more than it takes in via taxes and other revenue, the national debt continues to rise. To finance federal budget deficits, the U.S. government issues government bonds, known as Treasuries.
What country is in the most debt? ›Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP.
Are most U.S. citizens in debt? ›The average American holds a debt balance of $96,371, according to 2021 Experian data, the latest data available. That's up 3.9 percent from 2020's average balance of $92,727, largely due to the rising balance of mortgage and auto loans.
What countries owe the U.S. money? ›...
Debts and Debtors of the US Government.
| Country Name | Value of Holdings (Billions of $) |
|---|---|
| Ireland | 288.2 |
| Cayman Islands | 263.5 |
| Brazil | 259.2 |
| Switzerland | 229.3 |
Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse. This would be, as the saying goes, "too much money chasing too few goods."
Is it good for America to be in debt? ›A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth.
Is China in a debt crisis? ›
The size of China's debt problem is truly staggering. At last measure, debt of all sorts – public and private and in all sectors of the economy — amounted to the equivalent of $51.9 trillion, almost three times the size of China's economy as measured by the country's gross domestic product.
Does US owe China money? ›How much money does the U.S. owe to China? China owns roughly $1.08 trillion worth of U.S. debt. 2 This amount is subject to market fluctuations. The value will change whenever China trades Treasury securities or when the prices of those bonds change.
Who owns over 70% of the U.S. debt? ›Some 70% of the national debt is owned by domestic government, institutions investors and the Federal Reserve. A shade under 30% is owned by foreign entities, according to the latest information from the U.S. Treasury.
Can the US pay off its debt? ›Can the U.S. Pay Off its Debt? As budget deficits are one of the factors that contribute to the national debt, the U.S. can take measures to pay off its debt through budget surpluses.
Are there any countries not in debt? ›...
Which Countries Have The Lowest National Debt?
| Rank | Country | Debt-to-GDP Ratio |
|---|---|---|
| 1 | Macao SAR | 0% |
| 2 | Hong Kong SAR | 0.3% |
| 3 | Zimbabwe | 2.4% |
| 4 | Brunei Darussalam | 3.2% |
In most states, the debt itself does not expire or disappear until you pay it. Under the Fair Credit Reporting Act, debts can appear on your credit report generally for seven years and in a few cases, longer than that.
What is the oldest US debt? ›On January 1, 1790, the United States' public debt stood at $52,788,722.03 (Bayley 31). It consisted of the debt of the Continental Congress and $191,608.81 borrowed by Secretary of the Treasury Alexander Hamilton in the spring of 1789 from New York banks to meet the new government's first payroll (Bayley 108).
What year was the US debt free? ›However, President Andrew Jackson shrank that debt to zero in 1835. It was the only time in U.S. history when the country was free of debt.
Who brought the US out of debt? ›1837: Andrew Jackson
This resulted in a huge government surplus of funds. (In 1835, the $17.9 million budget surplus was greater than the total government expenses for that year.) By January of 1835, for the first and only time, all of the government's interest-bearing debt was paid off.
There are a number of countries that have pristine record of paying on sovereign debt obligations and have never defaulted. These nations include Canada, Denmark, Belgium, Finland, Malaysia, Mauritius, New Zealand, Norway, Singapore, Switzerland and England.
Can China call in U.S. debt? ›
Key Takeaways. Whether you're an American retiree or a Chinese bank, American debt is considered a sound investment. The Chinese yuan, like the currencies of many nations, is tied to the U.S. dollar. Because of varying maturities dates, China would be unable to call in all its Treasury holdings at once.
How does the U.S. make most of its money? ›Individual income tax has remained the top source of income for the U.S. government since 2015.
Why does China buy U.S. debt? ›China buys Treasuries to help depress the value of its currency, the yuan. A cheaper yuan makes the country's exports less expensive for foreign buyers. The Chinese economy would suffer as much as, if not more than, that of the United States if China were to suddenly stop buying U.S. debt.
How can the U.S. get out of debt? ›Raising taxes and cutting spending are two of the most popular solutions for reducing debt, but politicians may be hesitant to do both. Diverting spending from the military to other sectors may boost job growth, which could spur consumer spending and help the economy.
How can we reduce US debt? ›- Lower Health Care Costs and Restore Medicare Solvency ($1.5 Trillion)
- Reform the Tax Code to Grow the Economy and Reduce Deficits ($1 Trillion)
- Limit Discretionary Spending ($1.5 Trillion)
- Support Clean and Affordable Energy and Infrastructure ($500 billion)
| Characteristic | National debt in relation to GDP |
|---|---|
| Brunei Darussalam | 2.51% |
| Tuvalu | 6.02% |
| Kuwait | 8.68% |
| Timor-Leste | 10.04% |
Foreign holders of United States treasury debt
Of the total 7.2 trillion held by foreign countries, Japan and Mainland China held the greatest portions, with China holding 870 billion U.S. dollars in U.S. securities. Other foreign holders included oil exporting countries and Caribbean banking centers.
In this report, the Congressional Budget Office describes its projections of the federal budget and the U.S. economy under current law for this year and the decade that follows. The deficit is projected to total $1.4 trillion in 2023; annual deficits average $2.0 trillion over the 2024–2033 period.
How much does the U.S. owe China? ›2021, China owns $1.095 trillion of the total $28 trillion U.S. national debt.
Who paid off all of America's debt? ›On January 8, 1835, president Andrew Jackson paid off the entire national debt, the only time in U.S. history that has been accomplished.
Which countries owe the US money? ›
...
Debts and Debtors of the US Government.
| Country Name | Value of Holdings (Billions of $) |
|---|---|
| Ireland | 288.2 |
| Cayman Islands | 263.5 |
| Brazil | 259.2 |
| Switzerland | 229.3 |
1 Foreign governments hold a large portion of the public debt, while the rest is owned by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and holders of savings bonds.
Can the U.S. run a deficit forever? ›Answer and Explanation: The government can continue running a budget deficit forever if the economy guarantees a faster economic growth rate than the debt being accrued. It is possible to maintain the situation since future generations will pay off the debt slowly without burdening their native budgets.
What is causing the U.S. deficit? ›A deficit occurs when the federal government's spending exceeds its revenues. The federal government has spent $460 billion more than it has collected in fiscal year (FY) 2023, resulting in a national deficit.
What year did the U.S. go into debt? ›While the war was still going on, in 1781, Congress established the U.S. Department of Finance. Two years later, as the war ended in 1783, the Department of Finance reported U.S. debt to the American Public for the first time. Congress took initiative to raise taxes then, as the total debt reached $43 million.
Can the U.S. just keep printing money? ›Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse. This would be, as the saying goes, "too much money chasing too few goods."