President Joe Biden met House Speaker Kevin McCarthy on Monday to iron out the debt ceiling issue. However, the two failed to reach an agreement with just 10 days before a potential economic crisis.
President of the United States Joe Biden met on Monday with House of Representatives Speaker Kevin McCarthy to reach an agreement regarding the raising of debt ceiling. While Speaker McCarthy termed the meeting as productive, no deal has been reached yet. Biden as well as McCarthy have been struggling to make a deal as the House Speaker stresses the White House to cut spendings in their federal budget. President Biden has termed this demand by the Speaker to be extreme, in turn calling for new taxes, which is unacceptable to the Republicans.
What is the Debt Ceiling?
Debt ceiling is the limit of maximum outstanding federal debt that the United States government can incur. The debt ceiling was established by the US Congress in 1917 as a means of capping federal debt. The total national debt of the country as of January 2024 stood at $31.4 trillion, reaching the debt ceiling of $31.4 trillion set in 2021 when the then debt ceiling was raised by the US Congress.
Raising the Debt Ceiling
In order to raise the debt limit, the bill must be passed through both chambers of the US Congress i.e. The House of Representatives and the Senate. The President thus needs bipartisan support to raise the limit as the Republicans control the House of Representatives 222-213. Once it passes the House, Democratic-controlled Senate (51-49) can also pass it, leaving it to be signed by President Biden.
However, it could take several days to push such a legislation through the chambers, even if the President and the House Speaker reach a mutually agreeable deal at all. Speaker McCarthy cautioned that a deal must be reached within this week to avoid default.
What Happens if US Breaches the Debt Ceiling?
Since the debt ceiling regulates government’s debt-borrowing capacity and consequently, the government’s financing of its operations, a breach of the debt ceiling can prove to be disastrous for US economy as well as the global economy by extension. The deadlock between President Biden and Speaker McCarthy has led to concerns of US default. Even if the government manages not to default, just reaching the debt ceiling can severely paralyze the government’s functioning.
Economists from a reputed American firm have estimated the halting of 1/10th economic activities of the United States. Another prominent think thank has predicted the loss of 3 million jobs in the Unites States if the debt ceiling is breached. Earlier this year, Treasury Secretary Janet Yellen had warned of “irreparable harm” to the economy of United States if the debt ceiling was not raised.
It is highly likely that a collapse or near-collapse of the US economy would spiral into economic collapses across the globe. European economies can start to falter as trade and commerce relations would be strained between the largest economy of the world and its trading partners. Breach of the US debt ceiling could lead to a global economic crisis.
The Way Forward
Speaker McCarthy assured that his team along with President Biden’s team would work tirelessly throughout the week to reach common ground. The two have also scheduled several meetings to iron out this deal and avoid defaulting. As Democrats push for tax raises and Republicans push for budget cuts, economic collapse looms large.
