It has been yet another tumultuous couple of weeks in Washington. After weeks of disagreements between Congressional Democrats and Republicans, a government shutdown was on the line, along with a potentially devastating debt default situation. The situation was not new by any means, but the close call did have reverberations on the rest of the country.
Government shutdowns happen when Congress has failed to settle on an agreement to fund the government, and they result in all nonessential national government services stopping. As a result, a shutdown would create delays in obtaining government services such as issuing passports, and national landmarks would be closed. Additionally, most nonessential employees would be furloughed and many federal contractors unpaid.
There have been 21 government shutdowns in the history of the United States. The last one occurred during the Trump administration and lasted for 35 days during the end of 2018 through the beginning of 2019.
President Biden has proposed a massive $3.5 trillion budget resolution bill, which would serve as part of an implementation of the promises he made in his election platform. This has provoked concern from many Republicans and some moderate Democrats and created a bitter partisan stalemate in Congress. Biden’s proposed deal calls for an expansion of Medicare, child care benefits, and energy incentives to be paid for by increasing taxes on wealthy individuals and corporations. If there had been no compromises by September 30, another government shutdown would have occurred.
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In addition to facing a crisis over a shutdown, there remains another impending problem: the government reaching the debt ceiling limit. The debt ceiling is the maximum limit on how much the federal government can borrow to pay its upcoming bills, and the Treasury has been running on emergency measures since August to stay within this limit. Congressional Democrats are pushing to raise the debt ceiling, as the Treasury has warned is necessary by around October 18th, or the U.S. Government will no longer be able to begin paying off its debt. Though there is bipartisan agreement that the debt ceiling will need to be raised, Congressional leaders disagree on how to do so. Senate Minority Leader Mitch McConnell (R-KY) rejected Senate Majority Leader Chuck Schumer’s (D-NY) plan to have a simple majority vote, arguing that there are better alternatives and thus forcing a return to the drawing board with very little time left.
Fortunately, a stop gap funding bill which pushes back a government shutdown until early December was passed and signed just in time on September 30. However, as this is a temporary solution, the problems with passing the infrastructure bill, budget resolution bill, and raising the debt ceiling still loom in the near future.
A debt default situation would be the most detrimental outcome. This is an unprecedented event, and would send shockwaves throughout the global economy. Janet Yellen, the Treasury Secretary, has kept the government’s finances afloat since August using emergency measures but has warned that these options would run out by mid October. Companies such as Moody’s and figures such as Jamie Dimon, the CEO of Chase, have warned of ‘cataclysmic’ consequences that could last for decades if the U.S. defaults on its debt.
Even nearing a default on its debt could have devastating effects. Because U.S. debt is considered one of the safest on the earth, a near default could result in interest rates spiking and even a replay of another global financial crisis. Moody’s has predicted that the U.S. gross domestic product, the total value of goods and services produced in one year, could fall as much as 4%, up to 6 million jobs could be lost, and approximately $15 trillion could be lost in household wealth.
There is no clear outlook on how this debt default will be solved. Mitch McConnell has stated that the Democrats are completely capable of raising the debt limit through their own means, so the Republican bloc will not support their effort, though McConnell himself has stated that the debt limit should be raised. The House has passed the bill to raise the limit, but it has hit a roadblock in the Senate. This creates a tricky situation for Democrats to navigate, with only a few weeks to avert a total crisis.
As problems with the debt ceiling have been raised, many high profile figures have revisited the idea that the debt limit should be abolished permanently. Yellen spoke in support of abolishing a debt limit on the 30th and joins a long list of other high profile leaders who have supported that idea as well, such as Warren Buffett and multiple other former Treasury secretaries. There was a bill introduced to eliminate the debt ceiling in May, but nothing has yet to come out of it.
With the imminent prospect of dealing with a potential debt crisis and passing through budget and infrastructure bills, the politics in nation's capital near a tense turning point. How federal officials act will have a major impact on the lives of all Americans and could reshape the global economic picture for decades to come.
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