Policy- The US could default on its debt as early as June 1, Treasury Secretary Janet Yellen said.
- It could result in a severe economic downturn, leading to job losses and cuts to retirement savings.
Economic catastrophe for millions of Americans is less than a month away. It's totally avoidable. The real question is whether Congress will actually step in to stop it.
On Monday, Treasury Secretary Janet Yellen warned Speaker of the House Kevin McCarthy that the US could run out of money to pay its bills — and default on its debt — as soon as June 1. Raising the debt ceiling would solve that problem and keep the US from experiencing an unprecedented, and economically catastrophic, default, but McCarthy has been clashing with President Joe Biden since Republicans took over the House majority on the best approach to raise the limit.
Raising the debt ceiling means increasing the amount of debt the federal government is able to borrow to keep paying for programs already mandated by Congress, and Democrats have previously raised the alarm on the severe consequences for Americans should the US default. A report from the Joint Economic Committee in March found that a default could cost Americans $20,000 in retirement savings, monthly mortgage payments could climb, and private student-loan payments could surge. An analysis from Moody's Analytics found that even a short default could lead to losing 2.6 million jobs.
Republicans see the debt ceiling as a tool for making wide-ranging spending cuts, a long-held GOP priority. Democrats point to years of non-contentious and procedural raises as precedent for a clean raise, with no addendums or cuts.
And both sides are holding strong, as Republicans just barely passed through a package for a short-term raise with cuts, and Democrats have pronounced it dead on arrival.
Last week, the House passed McCarthy's bill to raise the debt ceiling, called the Limit, Grow, Save Act of 2023, by a narrow 217-215 margin. The legislation would raise the debt ceiling by $1.5 trillion, or through March 31, 2024, whichever comes first — and it included $4.5 trillion in spending cuts, including banning student-loan forgiveness and bolstering work requirements on welfare programs like SNAP.
Moody's Analytics recently found that McCarthy's plan to raise the debt ceiling attached to spending cuts could cost the country 780,000 jobs.
Even though the bill passed one chamber of Congress, it's highly unlikely to progress through a Democratic-controlled Senate and White House. Senate Majority Leader Chuck Schumer and his colleagues have referred to the bill as the Default on America Act — or DOA — and Schumer and House Minority Leader Hakeem Jeffries released a Monday statement calling on Congress to pass a clean debt ceiling bill, meaning no spending cuts attached.
"We do not have the luxury of waiting until June 1 to come together, pass a clean bill to avoid a default and prevent catastrophic consequences for our economy and millions of American families," Schumer and Jeffries wrote.
"Republicans cannot allow right-wing extremism to hold our nation hostage. For generations, Congress has made spending and revenue decisions as part of the annual budget process, which is currently underway. That is the appropriate place to debate and discuss our nation's fiscal picture — not in a hostage-situation in which extreme MAGA Republicans try to impose their radical agenda on America," Schumer and Jeffries added.
—Chuck Schumer (@SenSchumer) May 1, 2023
With Congress in session for just 12 legislative days ahead of June 1, Democrats and Republicans are finally convening. The White House confirmed Monday that Biden called McCarthy to invite him to a May 9 meeting with House Minority Leader Hakeem Jeffries and Senate Majority and Minority Leaders Chuck Schumer and Mitch McConnell.
"President Biden invited the four leaders to the White House to discuss the urgency of preventing default," a White House official said in a statement to Insider. "In that meeting, he will stress that Congress must take action to avoid default without conditions. And he will discuss how to initiate a separate process to address the budget and FY2024 appropriations."
It's unclear if Biden will budge on his refusal to negotiate raising the debt ceiling, but GOP senators are calling on him to do just that. "They have to participate, good Lord," Sen. Shelley Moore Capito told Punchbowl News. But Democratic Sen. Jon Tester told CNN that it would be a "big mistake" for the White House to reach a deal with Republicans that include spending cuts.
Democrats have previously raised the alarm on the severe consequences for Americans should the US default. A report from the Joint Economic Committee in March found that a default could cost Americans $20,000 in retirement savings, monthly mortgage payments could climb, and private student-loan payments could surge.
"I think yesterday marked the date at which the White House and Congress began taking this seriously enough to potentially stop just positioning and start working towards a potential deal," Brian Riedl, a senior fellow and economist at the conservative-leaning Manhattan Institute, told Insider.