Biden’s world eyes lame duck action on debt ceiling and post-2024 rate hikes

Biden’s world eyes lame duck action on debt ceiling and post-2024 rate hikes

The debate comes as several Republicans have argued for using the debt ceiling to extract concessions from the White House, and reflects growing fears in Democratic and economic circles that the GOP may be willing to jeopardize the country’s credit and financial stability in pursuit of its political goals.

The US has never paid its debt. But such a move would immediately send the economy into a tailspin, raise interest rates and reverberate around the world.

“It’s just too crazy to go down that road, but I think the odds are growing that we will,” Mark Zandi, chief economist at Moody’s Analytics, said of breaching the debt ceiling. “If we’re not in a recession by then, we will be.”

The White House is unlikely to move forward until after the midterms, yet it could allow the issue to spill over into 2023, when a new Congress is sworn in. In public, officials have declined to discuss any post-election priorities — insisting Democrats still have a shot at holding onto majorities in the House and Senate.

Biden, who as vice president was at the center of Obama-era debt ceiling concerns, has rejected lifting the debt limit as an “irresponsible” idea. But he seized on Republican rhetoric about it in the final days of the midterm campaign, warning that the GOP would destroy the economy if it gained control of Congress.

“Nothing, nothing, nothing will create more chaos and do more damage to the American economy than playing around with whether we pay our national bills,” Biden said during an appearance Tuesday in Florida.

Still, there’s little doubt inside the administration and on Capitol Hill that Republicans are poised to take at least the House — and that Democrats will need to move quickly to take full advantage of their final weeks in office.

Democratic leaders are already juggling several competing priorities for the deadlocked session, including efforts to pass a major defense bill, push through pending energy permitting bills and vote on proposals that protect same-sex marriage and support the election process. Congress also needs to reach an agreement on government funding before a Dec. 16 deadline.

Yet as those preparations have intensified in recent days, many Democrats have come to what one person familiar with the discussions described as a “growing agreement” that the debt ceiling must be resolved, if at all possible, before the end of the year.

“You’re talking about really tearing up the interior of the country,” one top Democratic economic adviser said of the threat of a debt default. “It should take a superhuman effort by rational people to do everything possible to prevent this from happening at the pass.”

However, the ways forward are limited. The Biden administration is considering whether to negotiate a deal with Senate Republicans to lift the limits in the weeks after the midterm elections, in hopes that Minority Leader Mitch McConnell will be open to avoiding potential economic damage from the debt limit, people familiar with the early strategizing said.

The alternative would be for Democrats to use the budget reconciliation process to raise the debt ceiling with just 50 votes in the Senate — an approach that would bypass Republicans entirely but require a series of procedural steps that could eat up valuable time lawmakers had hoped to devote to other agenda items. order at the last minute.

Some Democrats have floated more aggressive proposals, including giving the administration unilateral authority to raise the debt ceiling, raising it to some unfathomable amount to effectively eliminate it, or pushing Biden to reconsider repealing the ceiling altogether. In a letter sent earlier this week, 31 House Democrats they called their leadership Hill to “permanently end the threat that the federal debt ceiling poses to our economy and our standing in the world.”

But some Biden advisers see the elimination option as politically reckless and far more difficult to achieve consensus even among Democrats.

“It would be a very difficult vote to explain to people that we’re going to borrow as much as we want to borrow without limits,” said one Biden adviser. “Attack ads write themselves.”

Officials remain hopeful that McConnell, who was the top Republican in the Senate during the debt ceiling standoff in 2011, will want to avoid a repeat of that damaging episode more than a decade later. But his willingness to cooperate could depend at least in part on Democrats retaining control of the Senate; a proposition that looked increasingly uncertain in the protracted campaign.

There is less belief that GOP House Leader Kevin McCarthy will be open to discussion, especially in the face of calls from his conservative wing to use the debt limit as leverage to negotiate spending cuts. Former President Donald Trump has repeatedly attacked McConnell for not using the debt ceiling as leverage, saying Thursday that Republicans should “impeach” McConnell if he brokers a debt limit deal with Democrats.

“If I were a Democrat, I would try to move the extension during the lame duck,” said Doug Heye, a Republican strategist who served on the House GOP leadership team during the battle over Obama’s debt ceiling. He added that the party’s conservative base is likely to cheer for the debt limit fight even if there is no clear exit strategy. “If they don’t do that, then they’re in a situation where they have to negotiate with Republicans who don’t really want to negotiate.”

Biden’s advisers expressed confidence that Republicans would ultimately take the blame for any consequences of playing chicken with the upper ceiling, pointing out that it would be up to McCarthy to maintain his divisive club and sell the public on his demands – while Democrats could unite behind a simple stance that lifting the cap should not be a matter of debate.

But Biden himself has not yet reached that position. While the White House has said it believes any debt ceiling increase bill should be clean and has ruled out entitlement reform as part of any deal to raise the ceiling, it has not drawn similar lines on discretionary spending cuts.

The assumption is, in part, that the specter of economic disaster will do some of the political heavy lifting for them.

“Every time we go down this road, we’re getting closer to the edge,” Zandi said. “If they slip even a little, the consequences will be very serious.”

Ben White and Sarah Ferris contributed to this report.

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