Jan 26, 2023
House GOP Leaders Consider Extending Debt Limit to Sept. 30
(Bloomberg) -- House Republican leaders are considering proposing a short-term extension of the federal debt ceiling to delay the risk of a default until Sept. 30, according a person familiar with their deliberations, a step that would allow more time to resolve an impasse with Democrats.
The strategy is merely an option under consideration, and it isn’t clear whether the Democratic-controlled Senate or White House would agree to briefly putting off a reckoning on the debt ceiling, said the person, who asked not to be identified. Roll Call reported earlier that the idea was being discussed.
President Joe Biden lashed out at Republicans on Thursday, saying he would not negotiate on the debt limit and accusing the GOP of threatening the American public with financial turmoil to extract political concessions.
“I will not let anyone use the full faith and credit of the United States as a bargaining chip,” Biden said at an event with union workers in Springfield, Virginia. “In the United States of America, we pay our debts.”
The White House didn’t immediately respond to a question on the Republican deliberations.
The standoff between Biden and Republicans could unleash economic catastrophe if it’s not resolved in time. Financial markets are operating the assumption that a compromise will be reached, even if it’s at the brink of a default, as was the case in 2011.
The temporary debt-limit suspension House leaders are discussing would tie the debate more closely to federal spending and offer more options for negotiation since the debt talks then would be combined with deal-making on the funding package that keeps the government operating. Annual appropriations bills run out Sept. 30.
But the strategy would heighten the atmosphere of crisis at the deadline, since failure to act would cause a default on US debts and a partial government shutdown at the same time.
Still, it’s not clear even a short delay on a default would muster support from Republican hard-liners. Representative Andy Harris, a Maryland Republican, said he wouldn’t vote for such an extension without concessions from Democrats.
“I don’t support any ‘clean’ short-term debt ceiling extension, but might support one that included at least some elements of future spending control,” he said in a statement.
Treasury Secretary Janet Yellen told Congress earlier this month that the nation had hit its $31.4 trillion debt limit but that “extraordinary measures” such as deferring contributions to pension funds would stave off a US default until at least early June. Some analysts say accounting maneuvers could avert a reckoning until July or even later.
Biden said Republicans’ threat of default risked economic progress the country has made and touted a report earlier in the day that showed faster growth than forecast at the end of 2022.
“We’re moving in the right direction,” Biden said. “Now we’ve got to protect those gains that our policies have generated, protect them from the MAGA Republicans in the House of Representatives,” he added, a reference to former President Donald Trump’s “Make America Great Again” slogan.
Gross domestic product increased at a 2.9% annualized rate in the final three months of the year. But there are also signs of slowing underlying demand as interest-rate increases still threaten growth. Personal consumption rose at a below-forecast 2.1% pace.
Read more: US Economy Shows Slowdown Signs After Growing 2.9% Last Quarter
The president views the Republican agenda as the biggest threat to economic progress, according to a White House official, and Biden will be going on the offensive to highlight the impact GOP policies will have on working families.
“They want to raise your gas prices. They want to cut taxes for billionaires who pay virtually only 3% of their income now,” Biden said. And, he added, Republicans wanted to impose a national sales tax that would hit consumers “on everything from food, clothing, school supplies, housing, cars - the whole deal.”
A standoff over the debt limit between congressional Republicans and President Barack Obama in 2011 took the US to the precipice of default, prompting a downgrade in the government’s credit rating and a slide in US stocks.
Mark Zandi, the Moody’s Analytics chief economist, warned clients this week that a default would tip the economy into a recession, even if Congress acted quickly to resume honoring debts. A default that lasted even a few weeks would cut GDP by 4%, throw nearly 6 million Americans out of work and drive down stock prices by a third, he forecast.
--With assistance from Akayla Gardner and Jack Fitzpatrick.
(Updates with 2011 standoff, Zandi forecast on default impact, in final two paragraphs. A previous version corrected the name of a congressman.)
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