Democrats Accept GOP Debt Capping Solution, But ‘Cataclysmic Economic Scenario’ Looms

After negotiations that lasted overnight, Republicans and Democrats in Congress reportedly reached a temporary deal to raise the debt ceiling. Republicans had offered to extend the debt limit until December, but it comes with a caveat.

Senate Minority Leader Mitch McConnell’s offer, at least in the short term, will allow Democrats to raise the debt ceiling so America can continue to borrow more money to pay its bills, including its debt. debts to other countries.

In a statement posted on Twitter, McConnell said his plan allowed “Democrats to use normal procedures to pass an emergency extension of the debt limit to a fixed dollar amount to cover current spending levels up to. ‘in December”.

McConnell had given Democrats a three-month warning that they should raise the debt ceiling themselves through the process known as reconciliation – but they never did, and now the time is up .

“Democratic leaders wanted solutions. They wanted to turn their failure into a crisis for everyone else,” McConnell said ahead of the new interim deal.

Senatorial Minority Leader Mitch McConnell watches Senate Majority Leader Chuck Schumer speak (AP Photo / Andrew Harnik)

Now, with just 11 days before the country hits the congressional borrowing limit, the parties are finally finalizing a deal to keep the government from defaulting for at least a few more months.

The White House wants a long-term suspension of the debt ceiling. Press Secretary Jen Psaki said, “If we’re looking for the best options, why throw the box a few more weeks? Why create an extra layer of uncertainty? Why not just do it now? That’s what we keep pushing ourselves, and it’s our first choice. “

A Moody’s study agrees that a default would be a “cataclysmic economic scenario” that would disrupt global markets, cost up to six million jobs and wipe out up to $ 15 trillion in US household wealth.

Every area of ​​federal spending would be affected by a default – $ 20 billion in Social Security payments to seniors, paychecks to our military would cease as well as payments to vendors, and other government checks and spending would cease. Pension funds could also take a hit.

And the impact would spread throughout the economy. People who do not receive government checks could find it difficult to pay their bills, hurting local utilities and businesses, leading to layoffs.

JP Morgan CEO Jamie Dimon said, “The effects would be cascading. So the first day would be bad, but the cascading effects in the following weeks could range from a recession to complete disaster for the global economy.

The government’s credit rating could be affected and interest rates would rise, making mortgages and other loans more expensive.

US Treasury Secretary Janet Yellen said: “Our fragile recovery would be reversed. We would likely experience a recession. Millions of jobs would be lost and the pain would persist well beyond the resolution of the crisis.

Many analysts argue that the debt ceiling debate is a symptom of a deeper problem.

Cedarville University economics professor Jeff Hammond said, “The reality is that the US government continues to make more promises than it has the capacity to pay. This is what brings us to this problem. Senator Manchin mentioned this last week. We can’t even pay for existing social programs, and we’re going to add a whole bunch of them. “

For now, Senate leaders McConnell and Chuck Schumer appear to be close to finalizing a deal for a short-term extension, but in two months both sides could be back to where they are now, debating over how to deal with Washington’s $ 28.8 explosion. trillion in national debt.

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