The Week in Review: Focus on the Debt Ceiling Crisis

President Joe Biden and Speaker Kevin McCarthy. Photo Credit: Reuters

I wish I didn’t have to spend my Sunday thinking about the debt ceiling. I’m sure President Biden and all of the Democratic negotiators feel the same.

I have many thoughts about this complex subject, but a lot of folks have asked for me to weigh in, so I want to put a few of them out here. Many will disagree with me, I imagine, because it’s hard to know what the actual correct course will be. If we succeed, every other path will look reckless or fraught in hindsight, and if we fail every other path will have seemed obvious and wiser.

Let’s break this down a bit.

Negotiating with economic terrorists

First things first: Should Biden even be “at the table” with hostage takers on the economy? Shouldn’t he just say, “It’s a non-starter, we don’t negotiate with economic terrorists.”

I was of the camp, until pretty recently, that President Biden should just ignore the Republicans completely and refuse to talk until they raised the debt limit like responsible people. After all, that’s the way it’s always been done before, and if he even started negotiating, then he was basically giving them an incentive to seize upon the debt ceiling again and again, because they know they can get their way by threatening Armageddon.

But political commentator Rachael Bitcofer posted an observation that made me reconsider this position:

Folks, Biden can't call their bluff because Republicans aren't bluffing.

Total economic collapse is a feature, not a bug, to McCarthy's MAGA majority. They'd love to see it.

In other words, there are a number of GOP extremists who would happily blow up the economy because it is actually chaos that they want, and they believe they can pin that chaos on President Biden. Or if they can’t, they still think they personally can benefit from it, so let it burn.

Biden seemed to acknowledge this today in remarks at the G7. “I think there are some MAGA Republicans in the House who know the damage it would do to the economy, and because I am president, and a president is responsible for everything, Biden would take the blame and that’s the one way to make sure Biden’s not reelected,” he said.

Given that our top priority should be to prevent this from happening, what are the alternatives? And what would they look like?

Negotiating on the budget

President Biden has set out a budget, but the GOP has not. What they set out instead, as the Talking Points Memo’s Josh Marshall has said before, was a ransom note from the bank vault where they are holding the hostages. Now, it seems one of the hostage takers, let’s call him Kevin, is only somewhat more reasonable than the others, and he doesn’t actually want the bank to be blown up and everyone to die. But the authorities know that if Kevin caves too much, the terrorists would shoot him and pick someone else to negotiate.

President Biden has said that we really should negotiate the budget for 2024, which would happen in any case beginning this fall. If the Republicans want cuts to programs, let them put out a budget proposal, and if the Senate agrees, then we can have a budget. But if the Senate doesn’t agree, then there’s no budget and the government will eventually have to shut down until there is one, just as we’ve seen before.

A shutdown isn’t unusual. It’s happened before many times. If the parties are still far apart by then, we can expect that will happen.

What is highly unusual and dangerous is that the government won’t pay be able to pay its bond holders (or social security, or federal wages, or vast array of benefits) in a couple or so weeks. That’s a default, and it would spell global economic catastrophe, as everyone understands.

Negotiating to see if we can reach a budget, or get close to one, earlier rather than later doesn’t seem like that big a deal. The debt ceiling limit could be something put off while negotiations continue. This could be by agreement of the parties—to lift it until the fall, for example, since headway is being made on the budget.

Whether the public believes Biden is negotiating with a real gun to his head or is just leading something he and the Democrats would have had to do in three months anyway is a question of messaging. Sadly, Democrats are pretty terrible at that, but if it’s damage control we want, then I’ll take a political hit for bad messaging over the chaos caucus driving us off the economic cliff.

In the end, if an agreement is reached or negotiations continue with the debt ceiling put off for a while, both sides will claim it as a win, but most importantly the global markets will breathe a sigh of relief.

What happens if they actually reach an agreement?

It’s a curious position the country is in. Speaker McCarthy has zero wiggle room to negotiate beyond the all-or-nothing cuts of the “Default on America” Act, as Majority Leader Chuck Schumer (D-NY) has dubbed it. But there’s no universe where the Democrats agree to a 22 percent cut to non-discretionary spending. So if there is a compromise, it will look something like a freeze on discretionary spending at current levels plus some bones thrown to the GOP, such as increasing work requirements for people on assistance. Biden has already proposed such a freeze—a pretty hefty concession—but the GOP has deemed that “unreasonable.” In exchange for cuts, Biden will also insist on tax revenue increases, likely on the wealthy and on corporations.

Let me be clear here. Any concessions are painful and awful, but to get to a budget later in the year we probably would have to make them, or something like them, anyway. The Republicans can still shut the government down later this year, and just as with the debt ceiling threat, many of them would love to cause maximum chaos and keep it shut down, forever if possible.

One of a couple of interesting scenarios might happen as a result of this strange reality.

If a budget agreement is reached in principle, McCarthy still has get his entire caucus behind it. If it contains compromises from the bill that he barely squeaked through earlier, it could fail—not because it doesn’t have enough votes in Congress, but because someone could call for McCarthy’s head. All it takes is one defection from the last vote to remove him as Speaker. If he angers the Freedom Caucus by giving away too much, he is finished.

That said, if he stands too firm on his demands, the Democrats in the Senate will never go along with the bill. That’s why getting to a compromise on the budget feels unlikely. McCarthy is stuck between his hard place hardliners and the rock of the Democratic-controlled Senate.

If negotiations fail, then we are headed quickly to the cliff. In response, I imagine that the Democrats would advance their discharge petition, which as I wrote about earlier was long and secretly planned, to raise the debt ceiling. Perhaps they do this by themselves, or perhaps they have the help of a handful of GOP members in vulnerable Biden-won districts. That could be a clean debt ceiling raise bill, or it could be a version of a budget agreement the negotiators agreed to.

If there aren’t five GOP members willing to put the country before politics, then at least it will be clearer to everyone, especially middle of the road voters, which party is trying to save the country and protect things like our good credit and social security, and which party is willing to tank it in order to inflict massive cuts on the most vulnerable Americans.

And it’s at this point, where there is no returning, that Biden finally could say, “We gave Congress and the GOP its best chance. We had a deal. McCarthy blew it, so we threw him a lifeline. But Republicans refused that, too. I have no choice but to use my executive authority to order the debt ceiling raised.”

Why not say that right now?

This is another tricky position Biden finds himself in. He can’t signal very strongly that he intends to unilaterally lift the debt ceiling. In fact, he is signaling the very opposite, saying that a default is looking more likely and that he legally is constrained from taking action.

Why would he say that? For starters, the threat of a default has to loom large over everyone, or no one is going to compromise. That is true on both sides, sadly. If no one believed the default would actually happen because Biden would swoop in to save the day, then some House members would conclude, “Why negotiate at all?”

If Biden acts, it will be only as a final resort. And it would have to at least feel like he had zero choice, that the failure to achieve a debt ceiling raise has already hurt the economy badly, and that it’s not an ultimate solution because it’s still up in the air legally.

Okay, so then what?

The truth is, we don’t know. Markets may shrug, markets may panic. They most likely will be down on any news of a failure to reach an agreement. And as I explained above, even an agreement might not mean we get a bill.

If Biden lifts the ceiling unilaterally, some GOP members may sue immediately. There are still good legal arguments in favor of his ability to do this, including his constitutional obligation to faithfully execute the laws, the rule that more recent laws (here, the budget for 2023 versus the debt ceiling bill of 1917) should take priority, and of course the 14th Amendment which says pretty clearly that the validity of U.S. debt shall not be questioned. How to interpret all that is up to the courts, but that might take time. But in all likelihood, while that is being settled, the bills will be paid, and negotiations on the budget will continue.

It’s hard to say whether Biden would be viewed as a villain or a hero in this scenario. It probably depends on which party you are in or lean toward. For now, Biden is correct to downplay his ability to intervene last minute while still attempting to reach an agreement. Then we would see if McCarthy can even get it past his own caucus. If he can’t, the GOP will look weak and foolish, having wasted everyone’s time. And McCarthy might not survive a motion to vacate the chair.

It would be the utmost of ironies if some Democrats had to vote the GOP to keep McCarthy in charge of his own party. There’s already some whispers of that having to happen, but perhaps they are only being put out there to keep a full scale mutiny from taking place.

The bottom line

I am pessimistic that a deal can be reached that will both satisfy the Freedom Caucus and get through the Senate. If that happens, I would be both surprised and my faith in bipartisan compromise somewhat restored. Such a bill would likely receive angry “no” votes on both sides of the aisle, and McCarthy might be gone as result.

More likely, though, there is no deal, or one that the GOP radicals can’t stomach. Then out comes the Democratic discharge petition, giving the GOP “moderates” one last chance to do the right thing.

Biden better have his Executive Order pen ready.