It’s time to start worrying about the debt ceiling.
The federal government is careening toward its borrowing credit limit, beyond which the Treasury won’t be able to pay all its bills.
The consequences could be truly catastrophic — a global financial crash — or merely damaging: a jump in interest rates, a plummeting stock market and a more likely recession.
Last week, Treasury Secretary Janet L. Yellen said the “X Date,” the day the money runs out, could arrive as soon as June 1.
The problem, of course, is politics.
President Joe Biden wants Congress to lift the debt ceiling without significant conditions, just as it did three times when President Donald Trump was in the White House. But the new Republican majority in the House wants to force Biden to accept deep spending cuts and scrap some of his favorite programs.
“They’re trying to hold the debt hostage,” Biden complained Friday.
Republicans have used the H-word too.
“It’s a hostage that’s worth ransoming,” Senate Minority Leader Mitch McConnell, R-Ky., said after a previous debt crisis.
Both sides insist they’re determined to avoid a catastrophic default. But playing chicken over the debt ceiling is a bit like the nuclear balance of terror: Neither side wants a conflagration, but they could easily stumble into one.
Political polarization has made the problem harder to solve. House Speaker Kevin McCarthy has his job thanks to the hard-line Freedom Caucus, which has long opposed raising the debt ceiling under any circumstance.
In theory, there are plenty of ways to solve this problem — the debt ceiling has been raised seven times in the last decade — but most would require both sides to make painful concessions.
“The debt ceiling fight is like a kidney stone. You’re going to pass it; it’s just a question of how painful it’s going to be,” said Amy Walter, editor of the Cook Political Report, quoting a veteran lobbyist.
Last month, House Republicans agreed on an opening bid: They offered to lift the debt ceiling for one year if Democrats agree to cut nondefense spending (except Social Security and Medicare) by an estimated 22%, an extraordinarily deep reduction.
Biden has offered to negotiate over spending cuts, but says he won’t bargain as long as the GOP holds the debt ceiling hostage. He has little choice, however, since Republicans control the House and make up almost half of the Senate.
