The United States has few days before the U.S Treasury runs out of cash and default on its financial obligations. Although the government barely avoided shutting down last week, Congress has yet to decide how to raise the debt ceiling before October 18th the day when Secretary of the Treasury Janet Yellen has said the government will effectively run out of money.
Last week, Senate Democrats scheduled a vote to raise the debt ceiling, however, the vote was expectedly shot down by Republicans and Senate Majority Leader Chuck Schumer (D-NY) has scheduled a new vote for Wednesday, which is also expected to be blocked by Senate Republicans.
What is the debt ceiling and why is it important?
The debt ceiling is a term used to describe the amount of money that Congress allows the federal government to borrow. Since the U.S. usually tends to run deficits (collecting less in taxes than what it spends), the Federal government borrows money to pay for these deficits and they have to eventually repay these loans with some interest, however, the debt ceiling is not automatically increased after Congress has authorized new spending.
What this means is that the money that the federal government would borrow after the debt ceiling is raised will be used to pay for the spending that the government has already spent in the past. If Congress does not raise the debt ceiling, then the Treasury cannot borrow more money, meaning that the government would run out of cash to pay its debts and obligations.
The issue of the debt ceiling has been brewing beneath the surface over the last few months, with Yellen strongly pushing Congress to approve the increase of the debt ceiling, saying in an op-ed piece she published in the Wall Street Journal in September that failure to do so would not only be the first time that the United States would default on its bills but it would also “likely precipitate a historic financial crisis”.
Republicans say Democrats can raise the debt ceiling by themselves
Although Republicans do not disagree with raising the debt ceiling in principle, they have argued that the Democratic majorities in both houses of Congress have enough votes and the power to increase the debt ceiling. Senator Minority Leader Mitch McConnell sent a letter to President Biden saying that since Democrats have “chosen to govern alone” by pushing to pass colossal bills through Congress with no Republican support, they can do the same with the debt ceiling.
McConnell explained that the GOP “does not have a list of demands” and that the Republican Party has clearly warned the Democratic Party that “since your party wants to govern alone, it must handle the debt alone as well”. The Republican Senator said that Democrats can easily use the same procedural trick it has tried to use for passing its massive $3 trillion bill (budget reconciliation) and that the Republicans have made it clear for months that Democrats would need to use the reconciliation process to raise the debt ceiling.
Democrats are scrambling over how to raise the debt ceiling
While Democrats have said that they will raise the debt ceiling and avoid financial chaos, they are still puzzled about how to do it. Congressional Democrats have three choices: they can follow the GOP’s advice and raise the ceiling through reconciliation, they can try and wait out until the deadline is closer, and hope that Republicans will renege on their threats and vote to raise the ceiling or nuke the filibuster for debt ceiling discussions.
The congressional leadership of both the House and the Senate have made it clear that they do not want to use the reconciliation option. Chuck Schumer said this Tuesday that this procedure (which Democrats are intending to use to pass their agenda) was “very risky, risking default and risking downgrade” which is why he won’t use it, a sentiment that was also shared by House Speaker Nancy Pelosi (D-CA) earlier last week.
Democrats can also wait for the looming deadline and hope that the threat of the Federal Treasury running out of money would convince 10 Republicans to abandon their previous position and join ranks with Democrats to break a filibuster and get the debt ceiling raised. However, this possibility looks increasingly unlikely with Republicans looking united on the issue.
The last option that Congressional Democrats can use is to carve out an exception from the filibuster to the issue of the debt ceiling, this would allow Democrats to raise the ceiling without the need of using reconciliation or having 10 Republicans on their side. President Biden has said that using this option was a “real possibility”, however, Democrats would need all 50 Senators to support this motion in order to pass and it is still unknown if Senators Manchin (D-WV) and Sinema (D-AZ) will do so.
While Democrats debate what are they going to do to prevent a potential financial meltdown the clock is still ticking and if lawmakers do not find a way out of the problem, the country might be facing a disastrous financial collapse in a few weeks from now.