Congressional Democrats are about 48 hours away from staking the stability of the global financial system on Mitch McConnell’s capacity for shame.
For weeks now, the Democratic and Republican caucuses have been locked in a staring contest over the debt ceiling. Both parties want the debt limit to be raised. And for good reason. Contrary to misconceptions that Republicans have vigorously cultivated in recent years, raising the debt limit does not authorize new spending; it merely allows the Treasury Department to borrow enough money to finance the spending that Congress has already ordered. The alternative to raising the debt ceiling is for the U.S. government to default on its debt. Which would be a world-historic own goal.
If the United States reveals that its politics are too dysfunctional to meet objectives as simple as “don’t default on debts that are denominated in a currency your country can print at will,” the implications for our nation’s economic performance and geopolitical influence could be grave. At present, U.S. Treasury bonds are the foundation of the entire global financial system. Financial actors the world over have structured their assets and liabilities around the presumption that such bonds are essentially riskless. If the U.S. defaulted on its interest payments, just about everyone’s investment strategy would be upended. Global markets would be destabilized. America’s borrowing costs would soar, as investors demanded compensation for the risk of lending money to the U.S. That increase in interest rates would likely spread throughout the economy, driving up the cost of credit for consumers, businesses, and homeowners. This, in turn, would lead to a pullback in consumer spending and corporate investment. A recession would ensue. According to one estimate from Moody’s Analytics, a prolonged stalemate over the debt ceiling could kill 6 million U.S. jobs, nearly double the nation’s unemployment rate, and erase $15 trillion from American household wealth. Such a scenario would also jeopardize the dollar’s status as the world’s reserve currency — an exorbitant privilege that serves as one pillar of the nation’s geopolitical power.
No one wants this. Or at least, no significant constituency in the United States does. Chuck Schumer, Joe Manchin, Alexandria Ocasio-Cortez, and Mitch McConnell — all want the debt ceiling raised. The Republican Senate Minority Leader has described a potential default as a “crisis” that the government is duty bound to avoid. And Congress can honor that duty by taking a quick up-or-down vote.
But McConnell will not allow that to happen. His position is that Democrats have a responsibility to raise the debt ceiling — and his caucus has a right to make that necessary task as arduous, time-consuming, and as politically painful for Democrats as possible. The GOP’s rationale for this stance is simple: If Democrats are going to enact a large spending package without Republican input, then they’re going to have to raise the debt ceiling without Republican cover.
Thus, McConnell is not only instructing his caucus to withhold support for raising the debt limit but also refusing to allow Democrats to pass a debt-ceiling hike by themselves, through regular order, in a simple up-or-down vote. Instead, Senate Republicans have filibustered the Democrats’ attempts to enact a policy that Senate Republicans consider urgently necessary for avoiding economic catastrophe.
The aim of this obstruction is to force Democrats to raise the debt limit through the budget reconciliation process. Passing a debt-limit hike through a reconciliation bill is a bit of an ordeal. The process requires Democrats to pass a new budget resolution and then a new budget reconciliation bill — both of which would be subject to unlimited votes on amendments in the Senate. During such “vote-a-ramas,” Senate Republicans would have the opportunity to force vulnerable Democratic members to take votes on various wedge issues that could be used against them in future campaign ads. Altogether, this process could take nearly two weeks to complete. And although it would not directly effect Democrats’ impending Build Back Better reconciliation bill, it would chew up precious legislative calendar time that could otherwise be devoted to Biden’s signature legislation. As a consequence, Senate Democrats might be forced to cancel their October recess.
All this has congressional Democrats a bit pissed off. After all, when Donald Trump was president, Republicans did their own giant, partisan reconciliation bill. Nevertheless, House Democrats helped the GOP raise the debt limit in 2019. Which is to say: Nancy Pelosi’s caucus didn’t just allow a vote on a debt-ceiling hike, but actually voted for one. In doing so, Democrats gave Republicans bipartisan cover for raising the debt limit, thereby insulating the GOP’s frontline members from attacks on their fiscal rectitude.
And this is how Democrats are repaid for that kindness? With obstruction that forces them to cancel their vacations, take a series of difficult votes, and waste legislative time? Just so the GOP gets to have both the debt-limit increase it knows the country needs and fodder for disingenuous attack ads that paint Democrats as spendthrifts?
Democrats’ indignation over this state of affairs is justified. But allowing grievance to dictate governance is not. Passing a debt-limit hike through reconciliation is burdensome. But it’s nothing compared to presiding over a default. Democrats could save themselves the hassle of reconciliation by amending the Senate’s rules: With 51 votes, the party could declare that debt-ceiling bills cannot be filibustered. But Joe Manchin said Monday night that he would not support such a carveout. The West Virginia senator did, however, say that he would support raising the debt ceiling through reconciliation.
If Democrats initiate that process today, they should have time to complete it before October 18, when the Treasury Department expects America’s debt level to breach the statutory ceiling. If they delay for another couple days, reconciliation may cease to be a viable solution.
Some Democrats want to let the clock expire, and call McConnell’s bluff: Once reconciliation is off the table, surely he’ll acquiesce to an up-or-down vote. Or else, when push comes to shove, Manchin will favor a filibuster carveout over a global financial crisis.
I think both these outcomes are plausible. But given the stakes, plausible isn’t good enough. And in any case, if this standoff goes down to the wire, that could drive up interest rates all by itself.
Democrats should bite the bullet and start preparing a debt-limit reconciliation bill today. And to make the requisite time and effort worthwhile, they should use that bill to effectively abolish the debt ceiling.
One reason why Democrats have been averse to raising the debt limit through reconciliation is that the process might require the party to lift that ceiling to a specific number, as opposed to suspending it for a set time period. And “Democrat X voted to increase the national debt by $Y trillion!” makes for decent attack-ad copy. But vulnerable Democrats are going to be hit with disingenuous smears on one issue or another. And it’s hard to believe a debt-ceiling-themed attack ad would be uniquely effective. Regardless, as many center-left commentators have pointed out, if Democrats raise the debt ceiling past a certain point, the GOP’s attack lines become more whimsical than demagogic: “Jared Golden voted to raise the debt limit to a quadrillion googolplex dollars” is liable to spark more confusion than concern.
To be sure, the GOP could still lacerate Democrats for raising the debt limit to “more than $100 trillion.” But even that rhetoric sounds a bit silly and suspect. In any event, the political impact is likely to be small. And ensuring that Republicans can never again take the full faith and credit of the U.S. hostage would be a profound legislative achievement in its own right.
Democrats should get the ball rolling on such landmark legislation forthwith. McConnell’s donors might recoil at the idea of a debt default. But his party stands to benefit from the economic turmoil such a crisis would create. It is more important to preempt a brutal recession than to make McConnell blink. The post-COVID economic expansion is too precious to be wagered on the Senate Minority Leader’s sense of civic duty, or Joe Manchin’s willingness to put America’s well-being above Senate traditions.
The best time to raise the debt ceiling to a quadrillion googolplex dollars was 20 years ago. The next best time is today.