Despite High-Level Guarantees, Time Is Running Out to Avoid a Default
Senator Mitch McConnell had a message for Americans growing increasingly worried that the economy is going to crash if the federal debt ceiling is not raised: Just chill.
“Look, I think everybody needs to relax,” Mr. McConnell, the Kentucky Republican and minority leader with deep experience in debt limit showdowns, told reporters back home earlier this week. “Regardless of what may be said about the talks on a day-to-day basis, the president and the speaker will reach an agreement. It will ultimately pass on a bipartisan vote in both the House and the Senate. The country will not default.”
That may be a case of easier said than done. While Mr. McConnell, President Biden and Speaker Kevin McCarthy have repeatedly assured Americans that there will be no default, that guarantee is looking a little shakier with little more than a week to go before the U.S. Treasury is projected to run out of cash to pay its obligations.
Even if negotiators agree to a deal soon — an outcome that appeared within reach but still had not materialized as talks continued on Friday — there is still much to be done, not the least of which is winning approval in the House and Senate. That outcome is nowhere near certain given rising uneasiness — and some outright opposition — on both the right and left. At this point, no one can be absolutely certain that the United States won’t tumble over the default cliff, even if no one involved wants that to happen. Time is short.
“No one can guarantee there won’t be a default, if for no other reason than the clock is ticking down here pretty quickly,” said G. William Hoagland, a longtime Republican budget guru on Capitol Hill who is now a senior vice president at the Bipartisan Policy Center. “We are on thin ice in a big way.”
Negotiators got some breathing room Friday afternoon with the Treasury secretary’s announcement that the default deadline had moved four days later, to June 5. But Congress will still be hard-pressed to act by then, and the brief extension might even be counterproductive, sapping some urgency to seal a deal.
“We’re within the window of being able to perform this, and we have to come to some really tough terms in these closing hours,” said Representative Patrick T. McHenry, Republican of North Carolina and a lead negotiator for Mr. McCarthy. “We’re going back on final, important matters, and it’s just not resolved.”
Since the beginning of the impasse, Mr. Biden and congressional leaders have sought to tamp down concern that a default would occur, essentially saying that it was unthinkable because Congress has narrowly avoided default before. After one of the high-level meetings at the White House, Senator Chuck Schumer, the New York Democrat and majority leader, cheered the fact that all four leaders had said default was off the table.
Part of their motivation in offering these constant reassurances was to bolster their own forces, calm the public and keep the financial markets from cratering as the talks wore on.
But President Biden changed his tune slightly during his visit to Japan last weekend, saying for the first time that if Republicans insisted on pushing the issue to the hilt, maybe default was an option after all.
“I can’t guarantee that they wouldn’t force a default by doing something outrageous,” Mr. Biden told reporters. “I can’t guarantee that.”
Representative Hakeem Jeffries, Democratic of New York and the minority leader, expressed a similar sentiment when asked this week if he could still be certain the government would not default.
“Not with this group,” he said, referring to Republicans, some of whom he suspects would not mind the financial chaos resulting from a default if they thought it could help them politically in 2024.
Mr. McCarthy, the House leader and a California Republican, has also stated repeatedly that there would be no default and on Friday emphasized that he believed that a positive outcome would be the result.
“I’m a total optimist,” he told reporters as negotiations continued with no apparent breakthrough.
One way Mr. McCarthy has said a default could be avoided is for the Senate to pass and the president to sign the measure Republicans passed in the House raising the debt limit while making steep budget cuts and rolling back other Biden administration initiatives. But that is unlikely to happen even if the Treasury runs out of money. Mr. McCarthy has also ruled out an emergency short-term suspension of the debt ceiling.
Even an agreement between House Republicans and Mr. Biden would not end the drama; in some respects, it would be just the beginning.
House Republicans have a 72-hour rule for the time between when the legislation is made public and when it is to be voted on, a timeline that pushes the showdown ever closer to the Treasury’s early June deadline.
Plus, with hard-right elements of the Republican conference joining progressive Democrats in expressing reservations about the deal taking shape, Mr. McCarthy and Mr. Jeffries may have to thread the needle to produce the necessary votes from both sides to win approval of the deal.
Mr. McCarthy and his leadership team will have to assess extremely accurately the number of Republicans committed to voting for any final budget deal with a debt limit increase attached. Then they will need to let Mr. Jeffries know the number of votes Democrats need to produce to make sure at least 218 lawmakers will support the package.
Miscalculation could mean disaster. With the nation in a dire financial crisis in September 2008, the House stunned the Bush administration by failing to pass its bank bailout program. In a chaotic turn of events on the House floor, the measure failed as many Republicans refused to back it despite presidential pleas and some Democrats balked as well. The stock market tumbled in real time as the vote unfolded. Four days later, rattled House members came back and approved the proposal with a few changes.
Some believe that it might require a similar scenario now to push the debt limit plan through Congress — a failed vote and market drop that underscores the economic consequences of a default and motivates lawmakers to act. Others would prefer it not come to that given the potentially severe ramifications of even a brief default.
“I have been of the optimistic view that it wouldn’t happen, but the longer it goes on, the more likely it seems to me,” said Mr. Hoagland, the budget expert. “Time has run out for getting this done, but I am just praying a default doesn’t happen.”
Luke Broadwater contributed reporting.