US reaches debt limit amid showdown and ‘extraordinary measures’

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The United States reached its borrowing limit on Thursday, the Treasury Department said, later this year in a showdown with Congress, with potentially devastating economic consequences.

The federal government can pay most, but not all, of the bills with the taxes and other revenue it takes in, and it has to borrow the rest of the money. But Congress enforces a limit on how much debt the government can take on, and when that limit — currently about $31.4 trillion — is reached, lawmakers must raise it before the government can borrow more money.

House Republicans say they will push for significant spending cuts in exchange for helping raise the debt ceiling again. But the Democrats, led by the Biden administration, want a so-called clean increase with no spending cuts and have publicly stated that they will not negotiate the issue.

Thursday’s UKTN is not yet an economic disaster. But it does mean the Treasury is going to stretch its funds by implementing what Secretary of State Janet Yellen last week called “extraordinary measures” to keep the federal government fully funded and prevent its debt from defaulting.

A full default has never occurred — the Congressional Research Service in 1979 called a “mini-default” related to delayed payments to some investors — but if one did occur, it would likely lower the nation’s credit rating and affect his ability. to borrow and rock markets around the world.

The Treasury Department’s new measures, such as cutting contributions to workers’ pension plans, are expected to avert bigger problems sometime this summer, according to a letter Yellen sent to congressional leaders on Friday, giving Congress just a few months. to take action.

“The use of extraordinary measures will only allow the government to meet its obligations for a limited time,” Yellen wrote in her letter. “It is therefore critical that Congress act in a timely manner to raise or suspend the debt limit. Failure to meet the government’s commitments would cause irreparable damage to the U.S. economy, the livelihoods of all Americans, and global financial stability .”

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With the clock ticking on the divided Congress, the political battle to raise the federal debt limit — a move that has come to be viewed as politically toxic in recent years, following fiscal battles under President Barack Obama — is already reaching an all-time high. high.

Mitch McConnell stands next to Kevin McCarthy at a signing ceremony for the Keystone XL Pipeline Approval Act on February 13, 2015 in Washington, DC.

Mandel Ngan/UKTN via Getty Images, FILE

Republicans now hold the gavel in the House and have said they will seek major concessions from Democrats in return for their necessary cooperation in raising the federal cap. Newly minted speaker Kevin McCarthy is in control of negotiations in the chamber.

To secure the speakership, McCarthy made big promises to the conservative wing of his conference, including cutting federal spending to fiscal year 2022 levels. The Republicans who supported McCarthy will expect him to use the debt cap as leverage for these cuts.

McCarthy said he wants to negotiate directly with President Joe Biden.

“I had a really good conversation with the president when he called me, and I told him I’d like to sit down with him early to address these challenges,” McCarthy said at a news conference last week. “We don’t want to impose fiscal problems on our economy and we won’t. But fiscal problems would be to just keep going.”

White House press secretary Karine Jean-Pierre has brushed aside questions about whether the two men will meet.

“Congress will have to deal with the debt unconditionally. And it’s as simple as that. No hostages should be taken here. There should be no attempts to exploit or take advantage of the debt ceiling,” she said at a news conference. on Tuesday.

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“As you heard us say before, we will not negotiate the debt ceiling,” she said last week. “It is not and should not be political football. … And that is how we see this process moving forward.”

On Wednesday, Jean-Pierre told reporters the White House has “reached out to all members from both sides of the aisle,” but said again that the administration would not compromise on the debt ceiling. She said both sides have voted repeatedly to raise the limit in the past, including under President Donald Trump.

“It is essential for Congress to recognize that dealing with the debt ceiling is their constitutional responsibility. This is an easy one. This is something that should be done without preconditions,” she said.

While the battle over the debt cap is likely to be intensified in the House, Senate Republicans have a bargaining chip of their own: They remain the minority party in the chamber, but at least 60 votes are needed to pass legislation that raises the ceiling.

Senate Democrats could push for a higher debt limit through appeasement, requiring just 50 votes, with Vice President Kamala Harris breaking the tie. But that process is time consuming and could still be blocked by House Republicans.

PHOTO: House Speaker Kevin McCarthy speaks at a news conference in Statuary Hall at the Capitol in Washington, January 12, 2023.

House Speaker Kevin McCarthy speaks at a news conference in Statuary Hall at the Capitol in Washington, January 12, 2023.

Jose Luis Magana/UKTN

The last time the limit was due to be raised, in late 2021, Senate Minority Leader Mitch McConnell pushed for Democrats to raise the limit themselves. McConnell made a deal with Senate Majority Leader Chuck Schumer that saw a group of Republicans pass a one-time amendment to the chamber rules that allowed that debt increase to happen with just 50 votes — all from Democrats.

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But that was before Senate Democrats passed Biden’s Inflation Reduction Act a few months later without any Republican support. This time, McConnell may be less inclined to negotiate.

Some Senate Democrats wanted to raise the debt limit before House Republicans took control of the lower chamber in January. But they didn’t have time to do it during the lame duck session at the end of the last convention.

Schumer said on UKTN last week that he does not regret leaving the debt limit at this term.

“It has to be done in a two-pronged way. It always has been,” he said.

He pointed to the 2021 deal he had made with McConnell.

“I think the Republicans have learned their lesson,” he said. “They suffered, then we won the election [the 2012 midterms], and they will hopefully come work with us and get this done in a two-pronged way. That’s what we want to do, not brinkmanship.”

As the Biden administration prepares to face the Republicans, some members of the House GOP conference are working on a plan to address what could happen if they and the Democrats don’t reach a deal to end the borrowing cap to lift.

The Republican proposal, if it becomes law, would require the Biden administration to prioritize paying back certain debts over others. News of the deal was first reported by The Washington Post.

Sources familiar with the ongoing talks said McCarthy, R-Calif., has committed to conservatives that the House would approve the deal and send it to the Senate in the first quarter of 2023 as part of its larger agreement to vote acquire to become a speaker.

A McCarthy spokesperson did not respond to calls and messages asking for comment.

Lauren Fine, a spokesperson for Majority Leader Steve Scalise, told UKTN News that talks on the plan are “ongoing with the conference, and the leader remains a strong supporter of this legislation.”

Even if this legislation passes the House, it will almost certainly not be adopted by Schumer in the Senate.

The Treasury has previously rejected the feasibility of prioritizing certain bills over others, citing legal and logistical issues.

Sarah Kolinovsky of UKTN News contributed to this report.

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