Estimated read time: 4-5 minutes
This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.
WASHINGTON — The federal government is on track to max out on its $31.4 trillion borrowing authority as soon as this month, starting the clock on an expected standoff between President Joe Biden and the new House Republican majority that will test both parties' ability to navigate a divided Washington, with the fragile global economy at stake.
Once the government bumps up against the cap — it could happen any time in the next few weeks or longer — the Treasury Department will be unable to issue new debt without congressional action. The department plans to deploy what are known as "extraordinary measures" to keep the government operating. But once those measures run out, probably mid-summer, the government could be at risk of defaulting unless lawmakers and the president agree to lift the limit on the U.S. government's ability to borrow.
The expected showdown over the debt limit would be a stark display of the new reality for Biden and his fellow Democrats, who enjoyed one-party control of Washington for the past two years. It would presage the challenges to come in achieving even the modest ambitions that Democrats are bringing to the task of legislating in a divided Capitol.
The White House has insisted that it won't allow the nation's credit to be held captive to the demands of newly empowered GOP lawmakers. But the concessions made by new House Speaker Kevin McCarthy in his arduous path to securing the job raise questions about whether he has the ability to cut any kind of deal to resolve a standoff.
The new speaker stopped short of saying Republicans now in charge of the House would go so far as to refuse to pass the annual spending bills needed to fund the government, as happened more than a decade ago during an earlier debt ceiling showdown in Congress.
"We're going to look at every single dollar spent," McCarthy said.
'We're going to confront this'
The stakes are treacherous. Past forecasts suggest a default could instantly bury the country in a deep recession, right at a moment of slowing global growth as the U.S. and much of the world face high inflation because of the coronavirus pandemic and Russia's invasion of Ukraine.
The White House has ruled out executive action to stave off a default.
"Congress is going to need to raise the debt limit without — without — conditions, and it's just that simple," White House press secretary Karine Jean-Pierre said recently. "Attempts to exploit the debt ceiling as leverage will not work. There will be no hostage taking."
The debt ceiling debate is a form of political theater — it encourages lawmakers to engage in brinkmanship in the name of fiscal responsibility — though past showdowns have done little to meaningfully alter the long-term rise in federal debt.
House Republican leaders liken the debt ceiling to a credit card limit, promising to put "mechanisms in place so that you don't keep maxing it out," in the words of House Majority Leader Steve Scalise of Louisiana.
"We're going to confront this, and I think the American people have called on us to confront this," Scalise said.
'A day of reckoning is coming'
Republican Sen. Rick Scott of Florida pointed to his 2021 proposed amendment to the Senate Republican Conference that commits to only raising the debt ceiling if it also secures spending reform.
"I'll be fighting with every tool at my disposal to enforce this rule that every Republican in the Senate agreed to follow," Scott said. "A day of reckoning is coming."
Any effort to compromise with House Republicans could force Biden to bend on his own priorities, whether that's the funding of the IRS to ensure that wealthier Americans pay what they owe or domestic programs for children and the poor.
It's hard to peg the date when the government will hit its debt ceiling, because payments and receipts vary from day to day, especially with the April filing deadline for income taxes. The current balance suggests the debt ceiling could be reached as early as this week or as late as March.
When Treasury takes extraordinary measures to keep the government running, it can halt contributions to pension funds and borrow from accounts to manage changes in the foreign exchange rate, freeing up cash to meet its other obligations. But the extraordinary measures only work for so long, and would likely run out — and put the U.S. at risk of default — sometime around the summer.
If the government were to default, financial markets could be expected to crash. Several million workers could be laid off. The world could feel the aftershocks of the crisis for years to come.
Contributing: Kevin Freking, Zeke Miller and Lisa Mascaro
