[Salon] Hurtling toward default

[Chas Freeman <cwfresidence@gmail.com>]

https://www.bloomberg.com/news/newsletters/2023-01-23/a-polarized-us-hurtles-toward-a-fiscal-cliff

The risk has never been higher that the world’s largest economy could default on its national debt for the first time.

The US government has reached its legal borrowing limit — $31.381 trillion — and far-right Republicans in the House are demanding concessions from the White House, such as spending cuts, in exchange for lifting the ceiling, as they have previously over the years.

Key reading:

• White House Says Biden Won’t Negotiate in McCarthy Debt Talks
• Treasury Has About $500 Billion of Headroom After Debt Limit Hit
• What’s the Debt Ceiling, and Will the US Raise It?: QuickTake
• Trump Demands Republicans Spare Entitlements in Debt Fight
• McConnell Debt Pledge May Sap McCarthy’s Push for Spending Cuts

President Joe Biden rejects reducing expenditures while warning a default would mean “calamity.” Analysts say it could destabilize global bond markets.

Others including Senate Republican leader Mitch McConnell say a deal is inevitable, and Biden has agreed to at least chat about it with new Republican House Speaker Kevin McCarthy. The Treasury Department has about $500 billion of extraordinary measures it can use to allow the US to dodge a payments default while Congress hashes out a deal.

Still, with compromise a scarce commodity in the capital, it will be a Herculean task to find a middle ground acceptable to both the Biden administration and the Donald Trump wing of the House GOP.

One jokey idea making the rounds is that Treasury Secretary Janet Yellen can make the whole thing go away by simply minting a $1 trillion coin and depositing it at the Federal Reserve. So far she’s behaving as if the debt limit is real and requires congressional action.

So how does it end? Someone blinks, before or after a default, which could come some time in the third quarter of this year. Or Biden sides with liberals who argue the limit ought to be ignored as unconstitutional and keep on borrowing.

Risky? Definitely. Biden is also embroiled in a controversy over the discovery of classified documents in his office and home and his popularity is falling in opinion polls.

But as he tries fire up his political base before an expected bid for reelection next year, there might not be a better play. — Alex Wayne