Business Times
https://www.businesstimes.com.sg/opinion-features/another-game-brinkmanship
Another game of brinkmanship
Republicans trying to avoid an internal party fight over the US debt ceiling are caught between a rock and a hard place
By Leon Hadar
TUE, JAN 17, 2023
THAT inflation in the United States eased again in December, giving relief to households and businesses with possible implications for the rest of the economy, sounds like very good news.
Indeed, the latest inflation data released last week by the US Bureau of Labour Statistics, showing that prices fell 0.1 per cent compared to November, suggested that price increases may be moderating even without a recession that some had suggested would be necessary to cool the economy.
Moreover, if, indeed, as it seems, that the US Federal Reserve’s fight against inflation is working, it could lead eventually to a slowdown in interest rate hikes by the central bank, which would amount to fantastic news for the financial markets and for the entire economy.
But, hey, trust America’s politicians to ruin such an opportunity for a little celebration.
Now that the Republicans have taken control over the House of Representatives (albeit by just a very narrow majority), they are gearing up for the annual showdown on federal government spending. And related to that is the nightmare scenario under which the threat of blocking the nation’s debt-ceiling increase hangs over Washington, a development that could in turn lead to a US default.
Congress would have to pass this year a law to raise the current debt limit of US$31.4 trillion or the Treasury Department wouldn’t be able to borrow anymore.
A default on the US debt could ignite a global financial crisis and force the fragile American economy into a full-blown recession with millions of job losses, not to mention the spectre of rising government spending for years to come.
Treasury Secretary Janet Yellen has told reporters that the Treasury would begin pursuing “extraordinary measures” to ensure that the federal government would be able to meet its payment obligations but warned that the US cannot guarantee that it would be able to do that beyond June.
According to press reports, part of the private deal reached this month to resolve the standoff between Republican Representative Kevin McCarthy from California over the election of the House Speaker, and close to 20 ultra-conservative GOP lawmakers, includes a plan to pre-empt the possibility of a US default.
Under the plan Congress would order the US Treasury Department on the steps to take so as to meet US financial obligations if lawmakers and administration officials fail to reach a deal on lifting the nation’s debt limit later this year.
The showdown over funding the federal government and raising the debt limit has become an annual ritual of sorts, a game of brinkmanship involving the White House and Congress.
The plan being discussed by the Republicans would call on the Treasury to pursue only the most critical federal payments if and when the government reaches its legal borrowing limits.
That would include interest payment on the debt as well as continuing to fund the military and major social-economic programmes such as Social Security, Medicare and veterans’ benefits.
Assuming
that such a plan for prioritising payments is feasible, it would certainly
ignite major political debates, during which the Biden administration and the
Democrats would bash the Republicans for their willingness to make payments to,
say, wealthy bondholders, including Chinese banks, but not to fund, for
instance, social-economic programmes that benefit poor American children.
Another plan to avert a debt ceiling crisis being discussed now by Democratic and moderate Republican lawmakers is to have a vote on raising the nation’s borrowing limit ahead of the showdown over government spending.
Separating the debate over government spending from the vote on raising the borrowing limit would prevent the right-wing Republican lawmakers from trying to block a debt-ceiling increase.
But the proposed plan would require a so-called “discharge petition” in order to bring the bill to the floor of the House of Representatives. It would have to be approved by at least 218 lawmakers, which would mean that more than 10 Republicans would have to join the Democrats in advancing the bill.
Speaker McCarthy has already indicated that he intends to employ the debate over the debt limit as leverage in forcing the Biden administration to make drastic cuts in government spending. He even suggested that he would be ready to make cuts in defence spending, a move that could alienate the powerful bloc of Republican military hawks.
Many Republicans have expressed strong opposition to the proposals promoted by the ultra-conservative members of the GOP’s isolationist wing, most of whom are followers of former President Donald Trump and his America First agenda, to reduce or even eliminate US assistance to Ukraine to help it fight Russia’s aggression.
Indeed, a decision by Speaker McCarthy to surrender to the pressure from these ultra-conservatives and force cuts in government spending on programmes helping Americans pay rents and receive unemployment in these difficult economic times as well as on defence and on assisting Ukraine would lead to a major political rift among the Republicans.
More specifically, it would pit the noisy Trumpists who seem to thrive on political chaos against the more moderate Republicans, led by Senate Minority Leader Mitch McConnell from Kentucky, who are more inclined to cooperate with the Biden administration on central issues, and are certainly opposed to taking steps that would lead to a US default.
Most of these centrist Republicans belong to the internationalist wing of the GOP and have backed the Biden administration’s tough approach toward Russia and have made it clear that they would oppose any major cuts in US military and economic assistance to Ukraine.
All of which suggests that the Republicans would find themselves in a more politically precarious position than the Democrats if they refuse to support raising the debt limit –getting blamed by the American public for helping create a financial crisis and an economic recession.
If, on the other hand, Republicans try to avert such a costly crisis by pursuing their spending prioritisation plan, they may end up facing a major fight between Trumpists and the “Normies” in the party. And even worse, they could alienate moderate suburban Republicans and independents, ensuring electoral defeats in the races for the White House and Congress in 2024.