The Fight for the Debt Ceiling Has 5 Possible Endings

Over the past few decades, debates around the “debt ceiling” have become a recurrent feature of our political calendars – and “debt ceiling crises” are now hitting the nation with increasing difficulty.

The decision to allow the country to increase its debt-to-GDP ratio has many unexpected ramifications. It should be no surprise, then, that each party has radically different views about when or how the debt ceiling needs to be increased. Moreover,  a good debt ceiling crisis usually comes with a hard deadline – in this case, June 1st, 2023. If Congress can’t reach an agreement with the President, the country could default on its payments, and drag the country along for a deep economic dive.

Widespread ramifications, powerful players, and stark consequences? It should be no surprise that the debt ceiling debate often plays like a war.

Why The Debt Ceiling Matters

Originally thought of as a major “check” on government spending (and power), the debt ceiling is the maximum amount that the Federal Government can borrow. It has existed since 1917, and it allows the Government to maneuver its expenses within a specific range.

However, the Federal Government typically runs at a deficit, spending more than it raises via taxes. As a result, Congress needs to periodically issue “permission” for the Government to enter into more debt.  Think of it as the national credit card limit. If the country hits its spending limit, it won’t be able to carry out many of its ongoing Federal programs and grants, or even pay its employees.

Currently, the White House (and the Senate Democrats who support it) are requesting a significant “no-strings-attached” increase. Meanwhile, the Republican Party is seizing on this opportunity to enact many reforms, which could potentially bring the country closer to its ideals. These conditions include major tax cuts, new legislation on a variety of topics, or control over key offices.

What Could Happen Afterwards?

For the lights to stay on, Federal Government needs its credit line extended before June 1st. But currently, legislators are at a stalemate. So how will the field look after the battle?

Here are five possible outcomes:

1.  We reach a consensus

For economists, there is little doubt about the need to raise the debt ceiling on time. It must be done, or else. However, both the length of the debate and the terms of a possible ceasefire are still very much in the air.

It is unlikely the Democrats will get their dream “unconditional” debt limit bill. Meanwhile, GOP Senators are likely aware that they won’t get everything they are asking for, but will still aim to get as much as they can. And in any case, recent history shows that both parties will only get a temporary truce: in a few years, the debt ceiling question will arise again, and everyone will get a new chance to fight for their pet causes.

The timing of this truce will also matter. Until an agreement is reached, markets and investors will likely remain cautious or unwilling to commit. The closer the deadline, the more likely that “caution” will turn into “fear.”

2.  A discharge petition

A “discharge petition” is a mildly obscure move that allows lawmakers to prompt a vote on a specific bill, without the Speaker’s approval. To call for a discharge petition, any Representative would need the support of at least 218 House Members.

This would allow a daring Representative to “force a vote” ahead of time – but with a divided House, it is difficult to see if this gamble would pay off.

3.  A temporary suspension

The debt ceiling can be “temporarily suspended” for a few weeks or months. Congress would need to approve this suspension. During this time, the Federal Government could continue to accrue debt even if the Parties have not reached an agreement.

However, a suspension would only kick the ball further down the hill. It can help the White House get some breathing room and avoid default – but once the new deadline arrives, the battle will recommence.

4.  A One-sided White House Offensive

The President could technically bypass Congress’ approval for raising the debt ceiling – although the methods are not pretty, and would likely harm the country’s institutions and the people’s trust in them.

One way to do it would be to order the U.S. Mint to issue more symbolic money – for example, a coin worth $1 Trillion. The coin could be deposited with the Federal Reserve and used to pay some of the country’s bills. The downside? A quick spike in inflation at a time when the cost of living is already out of control. 

Alternatively, Biden could also “order” the government to keep borrowing money. The 14th Amendment would technically allow it, but the political cost could be huge. The markers will likely get spooked, which would be followed by more uncertainty. And anything involving the Constitution would almost immediately be challenged in the Courts.

5.  A default

Finally, there’s the “horror scenario:” the parties can’t reach an agreement, and the government would default on some of its obligations. This could mean anything from suspending federal programs and services, missing debt interest payments, and withholding pay from Federal employees. The country’s credit rating will likely suffer, which would impact the economy for years to come.

Grassroots Pulse covers public policy and political issues aimed at engaging highly-active policy makers, donors, and grassroots leaders at the forefront of the political process in America today.

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