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Washington — US President Joe Biden said on Monday the federal government could breach its $28.4-trillion debt limit in a historic default unless Republicans join Democrats in voting to raise it in the two next weeks.
Senate Republicans, led by minority leader Mitch McConnell, have twice in recent weeks blocked action to raise the debt ceiling, saying they do want action but will not help. Republicans say Democrats can use a parliamentary manoeuvre known as budget reconciliation to act alone. Top Democrats have rejected that approach.
“Raising the debt limit comes down to paying what we already owe ... not anything new,” Biden said at a White House news conference.
Asked if he could guarantee the US would not breach the debt limit, the president answered: “No, I can’t. That’s up to Mitch McConnell.” He said he intended to speak with McConnell about the matter.
In a high-stakes standoff over parliamentary manoeuvres. McConnell for months has been saying that Democrats should use a process called “budget reconciliation” to get around the Senate’s filibuster rule, which requires 60 of 100 members to agree to pass most legislation. Senate majority leader Chuck Schumer, a Democrat, has rejected that approach and Biden on Monday pleaded not to use the filibuster to block action.
“Just get out of the way,” Biden told Republicans. “If you don’t want to help save the country, get out of the way so you don’t destroy it.”
Late in September, the US House of Representatives passed and sent to the Senate a bill to suspend the limit on Treasury borrowing through to the end of 2022. Schumer was expected to hold a vote on that measure this week.
Treasury secretary Janet Yellen last week warned legislators that the US government was close to exhausting its federal borrowing capabilities by about October 18.
Failure to act could have catastrophic economic consequences. Moody’s has warned that it could cause a nearly 4% decline in economic activity, the loss of almost 6-million jobs, an unemployment rate of close to 9%, a sell-off in stocks that could wipe out $15-trillion in household wealth and a spike in interest rates on mortgages, consumer loans and business debts.
Democrats note that they voted to raise the debt limit during Republican Donald Trump’s administration even though they opposed deep tax cuts that added to the debt.
Biden blamed the “reckless tax and spending policies” of the previous Trump administration for the need to raise the debt limit, noting that the US racked up nearly $8-trillion in new debt over four years, more than one quarter of the entire debt outstanding.
“Republicans in Congress raised the debt three times” under Trump, he said, with Democratic support.
Concerns over the debt ceiling contributed to Monday's drop in the stock market. Wall Street's main indices tumbled on Monday as investors shifted out of technology stocks in the face of rising Treasury yields, with concerns about US-China trade, Taiwan and the debt ceiling in the forefront.
McConnell stuck to his guns in an open letter to Biden on Monday.
“Senate Democrats do not need Republican co-operation in any shape or form” to pass a debt-limit increase bill, McConnell wrote. “Your lieutenants in Congress must understand that you do not want your unified Democratic government to sleepwalk towards an avoidable catastrophe when they have had nearly three months’ notice to do their job.”
McConnell is known for standing his ground once he takes a controversial position. For example, in 2016 he refused to allow a Senate hearing on then-president Barack Obama's nomination of Merrick Garland to a seat on the Supreme Court — holding the seat open until after Trump assumed office nearly a year later.
Schumer said the Senate will have to stay in session through the weekend and possibly into a planned recess next week if no progress is made on raising the debt limit.
Last week, the Senate’s parliamentarian ruled that Schumer could use the reconciliation process to bring a debt limit bill to the Senate floor, according to a source familiar with the ruling.
According to the parliamentarian, doing so would not jeopardise Democrats’ efforts to bring a second bill to the Senate floor under reconciliation. That is the multitrillion-dollar bill embracing Biden’s domestic agenda expanding social services and addressing climate change that Democrats are developing.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.