On Sunday, Treasury Secretary Janet Yellen delivered a stern warning, saying that if Congress does not act to raise the debt ceiling, it will cause a “constitutional crisis” and cast doubt on the United States’ ability to pay its debts.
Biden has requested that the debt ceiling be raised unconditionally by Congress.
Washington routinely caps the amount the government can borrow. The current limit is equivalent to about a year’s worth of the country’s GDP. Although the Treasury Department has done an excellent job of keeping commitments below the debt ceiling, it is possible that by July or August, the United States government will be forced to stop borrowing altogether.
Despite Biden and the Democrats’ opposition, the Republican-led House of Representatives enacted a plan to raise the government’s $31.4 trillion debt ceiling last month. However, the measure included deep spending cuts over the next decade.
President Biden plans to discuss this topic with House Speaker Kevin McCarthy (R-Calif.), Senate Minority Leader Mitch McConnell (R-Ky.), and other leading Democrats in Congress on Tuesday at the White House.
Yellen has warned that a financial and economic disaster will occur if these measures are not taken, which will be “catastrophic.”
Biden has consistently stated that he will not negotiate to raise the debt ceiling but is open to discussing budget cutbacks when a new limit has been established. Historically, debt limit rises have come alongside other legislative initiatives from Congress.
U.S. bonds are considered among the safest assets and are a foundational part of the global financial system; if their value suddenly plummeted, it would send shockwaves across global financial markets.
The House-passed bill would abolish some tax incentives for renewable energy, strengthen job requirements for several anti-poverty programs, reduce spending to 2022 levels, and cap growth at 1% annually.
Last week, Democratic Senate Majority Leader Chuck Schumer took steps to pave the way for a vote on a bill that would unconditionally suspend the debt ceiling for two years. However, Republicans in the House and Senate have stated they will not support such a bill.
On Saturday, 43 Republicans in the Senate showed they might filibuster a plan by Democrats to increase the debt ceiling without addressing other objectives.