After the Midterms: Raising the Debt Limit
Congress will need to raise the debt limit after the midterm elections. Although there may be some drama surrounding the issue, there is a way to pass both an increase in the debt limit and fiscal reforms.
This time around, the debt limit debate is sure to be full of theatrics. However, in the end, it is likely that the same outcome will occur as in previous years – the debt limit will be raised. Markets should not expect anything different this time around.
The sky's the limit when it comes to debt!
The debt limit has been raised 101 times since the first federal debt limit was set at $45 billion in July 1939. Its original intent was a matter of streamlining the financing of a growing superpower. In 89 of the last 122 years, federal spending going out was greater than revenue coming in, thereby creating a budget deficit. Congress holds the constitutional power to borrow money on the credit of the United States to fill that deficit gap. Instead of micromanaging each debt issuance, Congress delegated to the Treasury the authority to issue debt to pay existing financial obligations. However, the statutory debt limit gives Congress the final say in how much debt the Treasury can issue.
The federal government is projected to hit the debt limit some time during or after Q1 of next year. This means that the government will have to borrowing more money to keep up with its expenses. The debt limit is currently at $31.4 trillion, and it was last raised in December 2021. The government borrows $45 billion every week, so it is likely that the debt limit will be reached sooner rather than later.
The Treasury can deploy what's called "extraordinary measures" to continue to meet financial obligations for a limited period. These measures were first deployed in September 1985. The "X date" is the time when all measures are exhausted. The latest X date is projected for Q3 of 2023. If action on the debt ceiling isn't taken by then, the federal government would default on its financial obligations.
The debt limit is a critical issue that needs to be addressed in order to avoid a default on US debt. This would have severe consequences for the US economy, including a decline in GDP, an increase in unemployment, and a stock market crash. Even the threat of a default can have damaging effects, as was seen in 2011 when Standard & Poor's downgraded the US credit rating. It is essential that our political leaders come together to find a solution to this problem before it's too late.
It is encouraging to see that there are discussions among the White House and lawmakers about raising the debt limit sooner rather than later. However, given Congress's track record of procrastination, it is wise to remain cautiously optimistic about any potential action being taken in the near future.
How often can something be called a crisis?
The debt limit has been a source of contention for many years. In 1953, the first time it was referred to as a "crisis," the Senate refused to increase the debt limit $15 billion to $290 billion. The Treasury ended up slowing defense payouts to contractors and monetizing $500 million of gold to repurchase Treasury notes, buying some extra time to negotiate a temporary debt limit increase of $6 billion. Debt limit crises later arose in the 1970s, 1980s, 1990s, and 2010s. The debt limit is a controversial topic because it puts a limit on how much the government can borrow, and some believe that this limit is too low.
The Washington establishment loves manufactured crises. The debt limit is just one example of a once benign and bipartisan concept that has devolved into a political weapon. Vice President Aaron Burr was responsible for eliminating a motion to end floor debate in 1806, a change that led to the partisan filibuster. The Congressional Budget Act of 1974 created a special legislative process called "reconciliation" with the intent to reduce the deficit. However, reconciliation is now often used to pass multi-trillion dollar agendas on party-line votes. This is not what the American people want or need. We need our elected officials to work together to find real solutions to our country's problems.
While the debt limit show may be here to stay, it is important to remember that there has never been a default directly caused by a failure to raise the debt limit. This underscores the importance of maintaining a strong credit rating and avoiding a potential default. In the end, the debt limit show serves a political and governing purpose, even if it is a dysfunctional one.
Is This Time Really Different?
The crisis around the debt limit is getting worse by the day. Some experts are even predicting that it could lead to an apocalyptic scenario. The situation is definitely getting dangerous and it's important for everyone to be aware of what's happening.
It is clear that the Republicans are in a strong position to win back at least one chamber of Congress next Tuesday. This is due to a variety of factors, including President Biden's low approval rating, high inflation, and low satisfaction with the direction of the country.
The article paints a picture of Kevin McCarthy as a weak and ineffective leader. It is clear that the author believes that McCarthy is not up to the task of setting the legislative agenda for the Republican Party. The article cites various sources who describe McCarthy as "dumb," "pathetic," and "bland." It is clear that the author believes that McCarthy is not the right person for the job.
I predict that the debt ceiling crisis will happen again in the near future. I think that the Tea Party Republicans will be the ones to push for it and that they will ultimately be successful in getting what they want. This will have a major impact on the Republican Party and their ability to govern effectively.
In an interview with Punchbowl News last month, McCarthy indicated that he was willing to use the vote on the debt limit as leverage to get some policy concessions from Democrats. "We're not just going to keep lifting your credit card limit, right?" McCarthy said. "And we should seriously sit together and figure out where we can eliminate some waste." This position was echoed by several other top-ranking Republicans.
The Democrats are raising alarm bells in response to the Republican position on the debt limit. In remarks last week, President Biden said that if the debt limit were to be reached, it would create chaos and damage the American economy. The Democrats are urging the Republicans to come to the table and negotiate in order to avoid economic disaster.
I think both McCarthy and Biden have valid points about the debt limit. I think it's important to have a strong negotiating position on the debt limit, but I also think it's important to remember that the debt limit is only one part of the overall budget picture. I think we need to be careful not to let the debt limit become a political football that gets kicked around every time there's a budget disagreement.
The Democrats' focus on fear over hope in their economic messaging may not be the best strategy, according to one pollster. However, with Republicans holding a strong advantage on economic issues, the Democrats may have no choice but to close their midterm messaging with a focus on fear.
What to Watch: The Coming Debt Limit Pivots
The most important relationship for season 102 of the debt limit will be between McCarthy and Biden. The two have a relationship that can be described as “frosty” at best. They have only talked on the phone once the past two years. The irony is that the two are kindred spirits. Just as McCarthy has been denigrated by the press corps, so has Biden. Both are genial and not overtly ideological politicians. McCarthy has worked to find his place in a Republican Party that’s rapidly changing. The soon-to-be octogenarian president, who has been in Democratic politics almost as long as McCarthy has been alive, also is adapting to a Democratic Party that shifted left in the last decade. There’s a quiet relationship to be forged, even if McCarthy’s right and Biden’s left would rather them put up a fight.
There are several factors pointing to some debt limit moderation after the midterms and as the new session of Congress begins next year. This is good news for the economy, as the debt limit has been a major source of instability in recent years. Moderation of the debt limit will help to create a more stable economic environment and allow for more predictable economic growth.
For McCarthy, Trump and the MAGA movement will be goading him to fight as speaker. But that won’t necessarily include calls to cut entitlements in exchange for raising the debt limit. Trump is a fighter, but he’s the self-proclaimed “king of debt.” While several fiscal conservatives who align with Trump want to see changes to Medicare and Social Security, Trump himself found political success by protecting entitlement programs. Keeping direct entitlement reforms on the sidelines removes one of the biggest barriers to a deal.
I believe that Trump and McConnell are both playing a dangerous game with the American people. Both men are more interested in political gamesmanship than they are in actually governing. Trump is more interested in getting reelected than he is in governing, and McConnell is more interested in maintaining his power than he is in doing what's best for the American people. This power grab comes at a time when the country is already deeply divided. Trump and McConnell are both playing to their base, and they're doing so at the expense of the American people as a whole. This country needs leaders who are willing to work together for the common good, but Trump and McConnell are only interested in furthering their own agendas. The American people deserve better. We deserve leaders who are interested in governing, not in playing games. Trump and McConnell are doing a disservice to the American people, and I hope that they both realize that before it's too late.
If Republicans are successful in taking back the Senate in the next election, it could open up opportunities to pass legislation and overturn regulations on a simple party-line vote. This would be a positive development for the debt limit, as it would provide a release valve for several conservative priorities. Of course, any such legislation would be vetoed by President Biden, but it would serve as a powerful messaging tool nonetheless.
Biden has promised to be a moderate force in reaching a deal on the debt limit, but after a poor showing in the midterms, it remains to be seen how much he will be able to deliver. Democrats are divided on spending, with some fearing that going too big could backfire. It will be up to Biden to navigate these waters and find a compromise that satisfies both sides.
It appears that voters are on the verge of giving Republicans a bigger check on Biden, due in large part to their lack of trust in his handling of the economy. According to recent polls, voters care more about tackling inflation than unemployment, and a majority of Americans once again think the government is trying to do too many things. While the actions of the Federal Reserve will be far more consequential to inflation than any fiscal policy, voters will be looking for the federal government to row in the same direction to constrain high prices.
I think it's great that President Biden is looking to reduce the deficit in a bipartisan way. I think it's important for him to show that he can work with both parties to get things done, and I think it will help him win reelection in 2024. I think it's also important for him to keep inflation under control, so that the economy is strong when he runs for reelection.
Not A Tony Or An Oscar, But A Blue Ribbon
The return to budget caps and a promised vote on a balanced budget amendment are both possible ways to reduce the debt by $7 trillion over the next decade, according to the nonpartisan Center for a Responsible Federal Budget. However, most of what’s proposed in the blueprint is not politically feasible.
The 2011 debt ceiling deal created the Joint Select Committee On Deficit Reduction in order to find a bipartisan path for reducing the deficit by at least $1.5 trillion over the decade. This "Supercommittee" looked at revenue increases and spending cuts, including for entitlements. While this was a positive step in terms of tackling the issue of the deficit, it ultimately failed to produce any lasting results.
There's another blue-ribbon committee lurking. In both the Senate and House, a bipartisan group of legislators last year introduced the TRUST Act. Led by Senator Mitt Romney (R-U.T.), the bill would create bipartisan “Rescue Committees” for “endangered trust funds” (e.g., Highway Trust Fund, Medicare’s Hospital Insurance Trust Fund, and both Social Security trust funds) that would seek to craft bipartisan legislation to improve the solvency of these programs. Of course, the odds of such Rescue Committees putting together a bill that would actually garner 60 votes in the Senate and a majority in the House are slim. The Supercommittee also failed in reaching a deficit reduction agreement. It's time for our elected officials to stop playing games with our future and come together to find real solutions to the challenges we face. The American people deserve nothing less.
The debt limit is a contentious issue in Congress, but ultimately it will be raised and the government will continue to function. This is good news for Americans, as a debt default would have devastating consequences for the economy. While our elected officials may not always agree on the best way to move forward, they ultimately want what's best for the country.