President Joe Biden and House Speaker Kevin McCarthy’s talks on Wednesday are about more than a Washington power game.
If the two most important leaders in Washington can’t agree to lift the debt ceiling by the time the Treasury runs out of money to pay its debts, the United States – the world’s fabled economic safe haven – could go into default.
Every American could get hurt in the ultimate demonstration of how partisan politics, including growing conservative extremism, is threatening the country’s ability to govern itself and could doom it to a self-inflicted disaster.
Because the government typically spends more than it takes in through revenues, it must borrow money to pay for commitments that Congress has already made.
So, if lawmakers don’t grant more lending authority by mid-summer, Social Security retirement payments will be on the line. Veterans could stand to lose their vital health and living benefits. Americans whose 401(k) funds are locked into stocks could see their savings plummet in a global market crash. Borrowing costs for consumers would also likely spike, potentially plunging the economy into a recession that could choke job growth and cause widespread misery.
The Republican speaker and Democratic president have been amping up for days by digging into positions from which it will be hard to retreat. Both sides are effectively betting that the consequences of failure would be so hideous, and politically ruinous, that the other side will blink first. But what is so frightening in this game of economic Russian roulette is that, just maybe, both sides will stand firm.
McCarthy heads into Wednesday’s meeting with an impression – largely rooted in his right-wing House majority’s rhetoric and his own strategizing – that he’s there to negotiate. But Biden says there can be no negotiating on such a cliff edge and is refusing GOP demands for huge spending cuts in return for more borrowing authority. This is not the first time that the country’s reputation for paying its bills has been on the line. Credit ratings agency Standard & Poor’s downgraded the country’s stellar rating slightly following a debt ceiling standoff in 2011, citing dysfunctional US policymaking.
Americans should be especially worried now because the normal assumption that it will all get sorted out after some typical 11th hour brinkmanship is looking far shakier. For one thing, McCarthy only won the speakership in chaotic scenes last month after promising hardliners that he’d hold Biden to ransom on the debt ceiling. If his tiny GOP majority won’t agree to vote for more borrowing, or if he seeks Democratic votes to get it done, his speakership could be history.
Furthermore, some Donald-Trump-style House Republicans might enjoy the chaos that would ensue if the debt ceiling isn’t raised – either because of an ideological reluctance to fund government itself or over the prospect that a wounded Biden could be easier prey for the ex-president if they meet in the 2024 election. Given these dynamics, and McCarthy’s own transformation into a “Make America Great Again” Republican, he might be tempted to side with the extremists in his conference. Still, their sudden fiscal responsibility looks hypocritical since they waved through several debt ceiling hikes when Trump was ballooning the deficit.
Americans have been through a tough time. A worst-in-a-century pandemic, disruption to schooling, more than a million Covid-19 deaths, an insurrection fueled by Trump’s election lies and an economic crisis have left the country exhausted and demoralized. But hope is sprouting. Job growth is standing firm, inflation is ebbing and with the S&P 500 index up 6% on the year, the recession that had been feared for 2023 may not arrive or may be a shallow one.
A self-inflicted wound now, whoever is mostly to blame, would be just too much.
But it would not be the first time in recent history that overzealous ideology trashed an economy. Last year, then-British Prime Minister Liz Truss introduced a mini-budget implementing far-right conservative economic orthodoxy that included massive tax cuts despite warnings it would be a disaster. The markets reacted with alarm, the pound crashed and there was global criticism, including from Biden. Truss was forced to reverse her plan, but many Britons paid a heavy price when their mortgage payments soared. She resigned the leadership of the Conservative Party and left 10 Downing Street weeks later.
Could the economy fall prey to McCarthy’s ambition?
The potential fallout from the Biden-McCarthy standoff has raised expectations for their meeting to extraordinary heights.
Their encounter is vital to McCarthy because it is imperative for him to be seen as standing up to Biden to stay in the good graces of the extreme GOP majority. In farcical scenes in which he took 15 ballots to win the speakership last month, the California Republican effectively pledged to extract spending cut concessions from Biden. So it’s fair to wonder whether McCarthy is risking the economic wellbeing of tens of millions of Americans to fulfill his own ambitions.