Finance executives say the risk of a default is already damaging the economy
By Katie Rogers
President Joe Biden met with finance executives earlier this week as he continued to try to put maximum pressure on Senate Republicans to raise the debt ceiling before Oct. 18, the date the Treasury Department has said the United States would go into default.
Shortly after the meeting, Sen. Mitch McConnell, the Senate minority leader, seemed to relent from his opposition to allowing Democrats to lift the ceiling in the short term through regular channels. He said he would “allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December.”
The White House dismissed McConnell’s statement as an informal offer and said the president would rather Republicans allow a vote on a spending bills to go forward.
The executives all warned that the economy would be threatened should the country default on its debts for the first time in history.
“It’s already beginning to cause some damage in the economy,” Jane Fraser, CEO of Citigroup, told the president. “It will hurt consumers. It will hurt small businesses.
“It’s not an exaggeration to say that even small distortions in the Treasury market can cost taxpayers tens of billions of dollars over many years,” she said, referring to the market for bonds issued by the Treasury Department.
Biden, seeking to convey the consequences to everyday Americans, asked the executives to explain what would happen if the United States went into default for only a day or two.
“Certainly, as we know, there are hundreds of millions of investors that are involved in the markets today that have put their hard-earned savings into the markets,” said Adena Friedman, CEO of Nasdaq. “And we would expect that the markets will react very, very negatively.”
McConnell, R-Ky., had long said Democrats must use a more complicated process known as reconciliation to overcome Republican opposition to raising the debt ceiling. In his statement Wednesday, he reiterated that the reconciliation process was the only option he supported for a longer-term increase in the limit, unless “Democrats abandon their efforts to ram through another historically reckless taxing and spending spree.”
The financial sector had been projecting a grim two weeks ahead. A report released by Goldman Sachs said that there was little reason to believe Congress would meet the Oct. 18 deadline, but that “the public and financial market response would likely force a quick political resolution.”
Senate Democrats are still weighing their options for a path forward. White House press secretary Jen Psaki told reporters Wednesday that the White House did not want to keep prolonging things with an extension. “We don’t need to go through a cumbersome process that every day brings additional risks,” Psaki said.
Asked why the White House does not support a short-term debt ceiling hike that could, at least temporarily, calm financial markets, Psaki replied, “Why not just get it done now?” She said Biden and McConnell had not yet spoken about the debt limit.
The budget process of reconciliation would most likely involve two marathons of politically charged votes that Biden has predicted would be “fraught with all kinds of potential danger for miscalculation.” Democrats say there is no guarantee that Republicans would not drag those votes out to inflict procedural and political discomfort.
Another option would be to change Senate rules to weaken the ability to filibuster, a proposal that has become increasingly popular in recent years as partisan gridlock has worsened.
Lawmakers have carved out other exceptions to the filibuster. In 2017, Senate Republicans created an exception to clear a path for Neil Gorsuch, President Donald Trump’s first Supreme Court nominee, to take the bench. In 2013, Senate Democrats did so to overcome Republican opposition to President Barack Obama’s nominees for Cabinet posts and judgeships.
On Tuesday evening, Biden called that route “a real possibility.” On Wednesday, he said he wanted to explain “in plain English” what was at stake should Republicans remain unmoved.
“The Democrats are willing to step up and stop this economic catastrophe if Senate Republicans will just get out of the way,” Biden said. “It’s not right, and it’s dangerous.”
McConnell said passing the extension would “moot Democrats’ excuses about the time crunch they created,” allowing them to proceed via reconciliation. “A more traditional bipartisan governing conversation could be possible” if they abandon plans for giant spending bills, he said.