WASHINGTON, Aug. 1 (Xinhua) — The United States debt limit was officially reinstated on Sunday after a two-year suspension, while lawmakers have no clear plan yet on how to avoid a potential default later this year.
As part of a bipartisan budget deal enacted in August 2019, Congress suspended the debt limit through Saturday. On Sunday, the debt limit was reinstated at a level covering all borrowing that occurred during the suspension, which had risen to 28.5 trillion U.S. dollars as of the end of June.
The debt limit, commonly called the debt ceiling, is the total amount of money that the U.S. government is authorized to borrow to meet its existing legal obligations, including social security and medicare benefits, interest on the national debt, and other payments.
Without new legislation to suspend or increase the debt limit, the U.S. Treasury Department will not be able to issue any new debt. The department will now begin taking so-called “extraordinary measures” to prevent the U.S. from defaulting.
However, the U.S. Treasury currently cannot foresee how long the extraordinary measures will last due to considerable uncertainty related to the pandemic.
“There are scenarios in which cash and extraordinary measures could be exhausted soon after Congress returns from recess” in mid-September, U.S. Treasury Secretary Janet Yellen said in a recent letter to congressional leaders, warning that failure to meet these legal obligations would “cause irreparable harm” to the U.S. economy and the livelihoods of all Americans.
The Congressional Budget Office also warned recently that the U.S. is at risk of a default in October or November unless the Congress raises or suspends the debt limit.
But the Biden administration and congressional Democrats haven’t decided how to address the debt limit as lawmakers will depart for more than a month for the August recess.
If Democrats want to pass legislation to raise or suspend the debt limit in regular order, they will need the support of 10 Republican senators to avoid a filibuster in the upper chamber, analysts said.
Some Senate Republicans plan to demand major spending reductions in exchange for their support of legislation to raise the debt limit, according to The Hill, a U.S. political website.
“I’m all for spending caps, especially on nondefense domestic discretionary spending,” Senate Republican Whip John Thune was quoted as saying.
But Democrats currently have no intention of cutting any deal on spending to win Republican support. They accuse the Republicans of agreeing to borrow trillions of dollars to enact tax cuts for the rich during the Trump administration.
“Senate Republicans didn’t flinch when it came to blowing a 2 trillion dollar hole in the deficit to help the rich get richer,” Senate Finance Committee Chair Ron Wyden, a Democrat from Oregon, said on the Twitter.
“Now they’re holding our economy hostage because they don’t want to pay the bill for their billionaire handouts,” Wyden said.
Without help from Republicans, Democrats could use the so-called budget reconciliation process to raise the debt limit, which would only require a simple majority of 51 votes in the Senate.
But Republicans could use a party-line vote on the debt limit to attack Democrats for overspending and higher debt in next year’s midterm elections.
It’s not clear whether the two parties will have another debt limit standoff later this year or if there will be a bipartisan deal to raise the debt limit.
In 2011, Standard & Poor’s downgraded the U.S. credit rating for the first time, citing the political brinkmanship on the debt limit. Another downgrade could bring even greater market disruption, said the Bipartisan Policy Center, a Washington-D.C. based think tank.
Meanwhile, a default on U.S. debt, or even the perceived threat of one, could have serious negative economic implications, according to the Committee for a Responsible Federal Budget, a nonpartisan watchdog group.
“An actual default would roil global financial markets and create chaos,” the Committee said, adding interest rates would rise and demand for U.S. Treasuries would drop as investors stop or scale back investments in Treasury securities.
Even the threat of default during a standoff would increase U.S. borrowing costs. The Government Accountability Office estimated that the 2013 debt limit impasse led to additional costs over a one-year period of between 38 million dollars and more than 70 million dollars.
“This is why no President or Treasury Secretary of either party has ever countenanced even the suggestion of a default on any obligation of the United States,” Yellen said.
“I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible,” she added. Enditem