Fight over Debt Ceiling Is World’s Most Dangerous Poker Game
Published in Der Standard
(Austria) on 12 May 2023
by Eric Frey (link to original)
(Austria) on 12 May 2023
by Eric Frey (link to original)
Translated from
by .
Edited by Michelle Bisson.
The Republicans are trying to blackmail Biden with the threat of national default. There’s a way out, but it, too, is risky.
Right now, it’s the most dangerous poker game in the world. Under U.S. law, Congress must give its blessing to take on additional debt to support expenditures it has already approved by regularly raising the debt ceiling. According to Treasury Secretary Janet Yellen, the government will reach its limit on June 1. Then, the United States will have to either cut off spending or default on paying its bills. That would plunge the global economy into a crisis, because U.S. bonds are considered the most secure financial investment.
No one in Washington wants the country to go bankrupt, but the Republicans are using the debt ceiling as leverage to force President Joe Biden to cut back his climate protection and social programs. They were successful in doing so when Barack Obama was in office, whereas under Donald Trump, the Republicans didn’t hesitate to raise the debt ceiling despite the nation’s skyrocketing debt. Biden, too, is demanding that the ceiling be raised without any strings attached, but he agreed to negotiate with House Speaker Kevin McCarthy, who is demanding concessions. In the background, Trump is playing with fire and calling on his fellow party members to let the country descend into bankruptcy if Biden does not give in. Like a game of chicken, the two drivers are speeding head on and hoping the other will swerve in time to avoid a fatal collision.
This game hasn’t caused much unrest in global financial markets yet. But the situation is even more dangerous now than it was in 2011, when the rating agency Standard & Poor’s 500 downgraded the U.S. credit rating. With a slim majority in the House of Representatives and dependence on the party’s radical right, McCarthy has hardly any room to make concessions. And Biden does not want to see his most recent legislative successes brought down by an antiquated law. The debt ceiling is an absurd institution ... Congress has already approved the extra debt in its budget legislation.
Neither side wants to be responsible for a catastrophe, should it occur, so each is at least pretending to negotiate. In this scenario, Biden has more to lose. Even if the majority were to hold the Republicans responsible, a financial and economic crisis would severely reduce Biden’s chances of reelection. No one expects his opponents to act responsibly anymore.
There is one way out, which Biden and Yellen have only alluded to so far. The 14th Amendment to the Constitution requires the U.S. to always pay its debts. Leading legal experts emphasize that this clause carries more weight than the debt ceiling. With some cleverness, then, the Biden administration could continue to take on debt and pay interest after the June 1 deadline and wait to be sued. The buck would then pass to the Supreme Court, which would have to rule either to declare federal bankruptcy or to prevent it. That, too, would be risky, but less so than another round of this evil game.
Right now, it’s the most dangerous poker game in the world. Under U.S. law, Congress must give its blessing to take on additional debt to support expenditures it has already approved by regularly raising the debt ceiling. According to Treasury Secretary Janet Yellen, the government will reach its limit on June 1. Then, the United States will have to either cut off spending or default on paying its bills. That would plunge the global economy into a crisis, because U.S. bonds are considered the most secure financial investment.
No one in Washington wants the country to go bankrupt, but the Republicans are using the debt ceiling as leverage to force President Joe Biden to cut back his climate protection and social programs. They were successful in doing so when Barack Obama was in office, whereas under Donald Trump, the Republicans didn’t hesitate to raise the debt ceiling despite the nation’s skyrocketing debt. Biden, too, is demanding that the ceiling be raised without any strings attached, but he agreed to negotiate with House Speaker Kevin McCarthy, who is demanding concessions. In the background, Trump is playing with fire and calling on his fellow party members to let the country descend into bankruptcy if Biden does not give in. Like a game of chicken, the two drivers are speeding head on and hoping the other will swerve in time to avoid a fatal collision.
This game hasn’t caused much unrest in global financial markets yet. But the situation is even more dangerous now than it was in 2011, when the rating agency Standard & Poor’s 500 downgraded the U.S. credit rating. With a slim majority in the House of Representatives and dependence on the party’s radical right, McCarthy has hardly any room to make concessions. And Biden does not want to see his most recent legislative successes brought down by an antiquated law. The debt ceiling is an absurd institution ... Congress has already approved the extra debt in its budget legislation.
Neither side wants to be responsible for a catastrophe, should it occur, so each is at least pretending to negotiate. In this scenario, Biden has more to lose. Even if the majority were to hold the Republicans responsible, a financial and economic crisis would severely reduce Biden’s chances of reelection. No one expects his opponents to act responsibly anymore.
There is one way out, which Biden and Yellen have only alluded to so far. The 14th Amendment to the Constitution requires the U.S. to always pay its debts. Leading legal experts emphasize that this clause carries more weight than the debt ceiling. With some cleverness, then, the Biden administration could continue to take on debt and pay interest after the June 1 deadline and wait to be sued. The buck would then pass to the Supreme Court, which would have to rule either to declare federal bankruptcy or to prevent it. That, too, would be risky, but less so than another round of this evil game.
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