Playing chicken with the debt ceiling

The U.S. government will run out of money on October 18, unless Congress authorizes more borrowing.

CNN describes (here) the potential consequences as follows:

“Since the US government spends more than it takes in through revenues, a debt default would force it to stop paying out — so military salaries, government retirement payments and other benefits would dry up. And if the US can’t pay interest on its debts, the rates it pays to borrow money will probably rise — meaning that mortgages, car loans and credit card bills would also go up. Millions of Americans would probably lose their jobs and the slowing pandemic recovery would crash. Since the stability of US debt is the bedrock of the global economy, a default by Washington could plunge the rest of the world into crisis.”

Raising the debt ceiling is an annual rite, and Congress has always come through, so nobody gets too excited about it. Wall Street isn’t yet, but should they be? Is this time different?

Republicans insist Democrats have the votes. They do, but they’d have to use up a reconciliation chit to pay for Republican spending, which could keep them from passing their spending. To clarify, Republicans are trying to use the debt they created with their deficit spending to block Democratic priorities. The Democrats are refusing to play that game.

Now, the two parties are locked in a dangerous game of financial chicken. And that’s how accidents happen.

There’s a flurry of news stories about it today, because some people are starting to get nervous. Jamie Dimon, America’s top private banker, said he’s begun preparing his bank for a “potentially catastrophic” government default (story here). House Democrats are trying to avoid the debt ceiling by suspending the debt limit through next year (story here), while Senate Democrats are pushing a stopgap spending bill to prevent a government shutdown (story here), which Republicans could block in the Senate. Meanwhile, Biden’s treasury secretary has begun blaming Republicans (story here), in case the worst happens.

It might — as the latest manifestation of America’s dysfunctional politics. But Sen. Bernie Sanders (D-VT) doesn’t think so. “I don’t think that they are that crazy that they would plunge the American economy and the entire world economy into a recession or depression, because we’re not paying the debts owed that were incurred under the Trump administration,” he said (story here). Republicans not crazy? I wouldn’t bet on it.

The late Rodney King famously asked, “Can we all get along?” The answer, apparently, is no.

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