Democrats Must Raise the Debt Limit to a Quadrillion Dollars
By Eric Levitz
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.