Analysis – Debt Ceiling: White House bets Republicans will blink under pressure

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By Trevor Hunnicutt

WASHINGTON (Reuters) – The White House is refusing to negotiate with hardline Republicans about raising the debt ceiling, believing many of them will eventually withdraw their demands as a growing chorus of investors, business groups and moderate conservatives warn of the dangers of towards a standard.

The high-stakes standoff is widely expected to last for months and could stretch to the last minute as both sides test each other ahead of June, when the US government could be forced to default on its debts.

As the White House calls on House Republicans to raise the debt ceiling to prevent economic chaos, it plans to highlight their threats to spending programs and the global economy, aides and allies of President Joe Biden say.

“Leading Republicans in Congress have admitted in the past that default would cause economic collapse, kill millions of jobs and decimate 401,000 plans,” White House spokesman Andrew Bates told Reuters. “But hardline MAGA Republicans are now calling for this outcome.”

The US government hit its limit of $31.4 trillion in loans on Thursday, a figure that reflects the money the government has already spent. House Republicans want cuts in government programs

before approving a higher ceiling; a similar demand in 2011 led to a downgrading of creditworthiness and chaos in the financial markets.

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But the White House strategy has its risks, given the unpredictable nature of the Republican hardline in the House, some Democrats say.

“There are certainly segments of the Republican caucus in the House, and in the broader conservative sphere, who argue quite explicitly that it wouldn’t be the worst thing” not to make a deal with the Democrats, said Tobin Marcus, who serves as the economic adviser to then Vice President Biden served during a fight over the debt ceiling in 2011.

Republicans call the idea of ​​a standard alarmist.

“We’re not going to default on the debt. We have the ability to manage the principal and pay our interest. But we also shouldn’t blindly raise the debt ceiling,” Representative Chip Roy, a leading conservative, told Reuters.

CAMPAIGN 2024 FOCUS ON EXTREMISM

The chicken game comes as the White House prepares for Biden’s anticipated re-election campaign. The 80-year-old Biden is expected to announce in February that he plans to run for a second term, and that his aides plan to focus on the rock-solid job market, falling costs and threats from “extreme” Republicans.

The fight against the debt ceiling could help Biden here, some strategists say.

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Some aides think he has a lot to gain from being seen as “the adult in the room” in the face of an opposition willing to bring down the economy. Democrats plan to use that theme in the 2024 election, even if a debt ceiling deal is reached soon.

The White House also notes vague plans by Republicans to prioritize some federal spending over others as the debt limit approaches, and suggestions by others to target Social Security spending.

Biden on Monday dismissed some lawmakers as “fiscally demented.”

Meanwhile, the economic picture remains mixed.

Biden and top US officials have repeatedly said they believe economic growth can slow to more sustainable levels without putting people out of work. The so-called “soft landing” is what the Federal Reserve is also aiming for, although they have admitted that goal may be elusive.

Retail sales fell the most in a year in December, suggesting that growth in the consumption-driven US economy is fading. Factory production, a barometer of the president’s goal of reviving US manufacturing, also recorded its biggest drop in nearly two years last month.

Biden did not name these numbers when they were released, but praised another economic report also released Wednesday on producer prices that showed progress had been made in taming inflation, the government’s biggest economic concern.

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“We have the most vibrant economy in the world right now — in the world,” Biden said in a political speech Monday. “We are doing better today than any other major country in the world.”

The trillions in spending allowed in the first two years of Biden’s presidency is expected to be spread over the next few years, which the White House says will help U.S. growth and avoid a recession.

If the debt ceiling is not raised, it could have the opposite effect.

“From both an economic and a financial perspective, a failure to raise the debt ceiling would be an unmitigated disaster,” said David Kelly, chief global strategist for JPMorgan Chase & Co funds.

“While not raising the debt ceiling poses the most immediate fiscal threat to the economy and markets in 2023, damage can also be done by continuing to ignore deficits altogether or by imposing very sharp fiscal tightening on an economy that is now completely addicted.” on the drugs of monetary and fiscal stimulus.”

(Reporting by Trevor Hunnicutt; editing by Heather Timmons and Alistair Bell)

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