Treasury Secretary Janet Yellen testifies during a Senate Fund Subcommittee hearing to consider the 2022 Treasury budget proposal on June 23, 2021 at the U.S. Capitol in Washington, DC.
Greg Nash | AFP | Getty Images
It is far from certain that Congress will not raise the debt ceiling before the Senate goes into summer recess, which will set the stage for a bitter argument with the parties over the credit ceiling later this fall.
Some economists were hoping Senate Democrats would include a debt ceiling hike in the $ 3.5 trillion budget proposal unveiled Monday morning.
Majority Leader Chuck Schumer, DN.Y., and House Speaker Nancy Pelosi, D-California, hope to pass their budget – with an emphasis on climate change and poverty – with or without Republican support.
The party’s budget didn’t mention the cap, however, meaning the U.S. government is on the verge of default when the Senate returns from its summer recess in mid-September.
It also means Democrats and Republicans must act quickly next month to reach an agreement on one of the toughest votes for any American politician.
Legislators of both parties are reluctant to vote on raising or suspending the debt ceiling. That’s because campaign ads often cast a vote to prevent a US default, as evidence that the incumbent is tolerating blatant spending.
Treasury Secretary Janet Yellen attempted to allay those fears on Monday when she again called on lawmakers to resolve their differences to avoid economic calamity.
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“Raising or suspending the debt ceiling does not increase government spending, nor does it approve spending on future budget proposals; it only allows the Treasury Department to pay for previously decided expenses, ”she said. “Failure to meet these commitments would cause irreparable damage to the US economy and the livelihoods of all Americans.”
Neither Schumer’s nor Pelosis’ offices responded to a request for comment. An adviser to the leadership of the House of Representatives told CNBC earlier this month that discussions about the cap were ongoing and that the party’s top lawmakers would not risk the full faith and creditworthiness of the United States.
Senate Minority Leader Mitch McConnell, R-Ky., Underscored last week that the GOP would not support raising the cap if the Democrats passed their $ 3.5 trillion budget, signaling the start of one as expected violent party struggle in September.
Senator Mitch McConnell and Senator Chuck Schumer in the Oval Office on September 6, 2017.
Kevin Lamarque | Reuters
“Let me be very clear: if they don’t need or want our contribution, they are not going to get our help in raising the debt ceiling that these ruthless plans require,” said McConnell.
The Republicans used an impending default in 2011 to secure concessions and budget cuts from the Obama administration.
In a worst-case scenario where the government defaults, US Treasury bondholders could charge dramatically higher interest rates and trigger a wave of higher borrowing costs that ripples through the economy. The US government has never defaulted on its debts and will not do so this time either.
Congress voted in July 2019 to suspend the debt limit until July 31, 2021. The Treasury Department is now taking temporary “emergency measures” to save cash so the government can continue to meet its obligations to bondholders, veterans and social security beneficiaries.
Yellen warned last month that the Treasury Department may not be able to sustain these emergency payments long considering how much Covid-19 stimulus Congress has approved under the Trump and Biden administrations.