This fall has been a chaotic one for Congress. Amid the ongoing drama of a House of Representatives leadership struggle and federal budget negotiations, the U.S. government has yet another bureaucratic issue to contend with: whether or not it will increase its debt limit, something that has turned into a burgeoning economic crisis for the country.
The Treasury Department estimates the federal government will run out of money by Nov. 3, and with that deadline less than two weeks away, Republicans and Democrats are facing intense political pressure to lift the legal cap on government borrowing as soon as possible. If Congress does not take action in time, the government could default on its loans for the first time in modern U.S. history, which economists say would be catastrophic and have serious, long-lasting financial implications.
The debt limit, or debt ceiling, is the maximum amount of money the federal government is allowed to borrow from itself and from other countries around the world. The current limit is $18.1 trillion, which might sound like a lot, but is still not enough for the government to operate. The U.S. government spends more money than it takes in every year, prompting it to seek alternate means of funding.
Congress used to vote every time the Treasury Department wanted to borrow money, but when this became too cumbersome leading up to World War I, lawmakers created the debt limit in 1917. Now, whenever the government gets close to hitting the debt ceiling, Congress votes to allow the government to continue spending money and then votes again to raise the amount the Treasury Department can borrow.
The U.S. federal debt has increased over time; and in recent years, Congress has frequently had to raise the debt limit. Since 1960, it has acted 78 times to permanently raise, temporarily extend or revise the debt ceiling, according to the Treasury Department. Of those occasions, 49 have happened under Republican presidents and 29 have taken place under Democratic presidents.
Like most things in Congress, the debt ceiling has become politicized over time. This means that whenever the government needs to borrow more money, Congress now tries to use the opportunity to force the president, or whichever party is in the minority, to agree to legislation they would otherwise be reluctant to pass.
— Real Time Economics (@WSJecon) October 22, 2015
Over the past few months, Republicans have said they want to attach large spending cuts or entitlement reforms to the debt limit increase, and the right wing of the party is pushing for the leadership to take a stand. Rep. Mick Mulvaney, R-S.C., told the Huffington Post Monday that the conservative House Freedom Caucus may refuse to vote for an increase that doesn’t include cuts.
All of this has been complicated by House Speaker John Boehner’s announcement last month that he will resign at the end of October. When House Majority Leader Kevin McCarthy unexpectedly dropped out of the race to replace Boehner, he set off a scramble to find a new speaker. While Rep. Paul Ryan, R-Wis., has now said he will run to replace Boehner and has the support of a majority of the House Freedom Caucus, those votes are taking place Oct. 28 and 29 -- right before the debt limit deadline.
Congress also drew close to causing a government shutdown last month when tense negotiations between Republicans and Democrats over the federal budget led the House to pass a continuing resolution just hours before federal agencies ran out of money. The continuing resolution preserves last year's funding levels until Dec. 11, at which time Congress will need to deal with budget appropriations again.
This will be the fifth time Congress has acted to increase the debt ceiling since Boehner became speaker in 2010, and the fights over these increases are part of what has contributed to his declining popularity. Both Boehner and Senate Majority Leader Mitch McConnell, R-Ky., have said they will not allow a default, but so far, McConnell is waiting to see what the House does before he acts.
The House could vote Friday on a bill from Texas Rep. Bill Flores, who heads the conservative Republican Study Committee, that would provide conditions for increasing the ceiling such as freezing all major rules until 2017. However, the Obama administration has said it would only accept a “clean” raise without strings attached, and Congressional Democrats are similarly not willing to negotiate.
“The consequences of brinkmanship and waiting until the 11th hour are already upon us,” Charles Schumer of New York, the third-ranking Senate Democrat, told reporters Tuesday. “The yield on Treasury bills is already gone up. People have to pay more for mortgages, people have to pay more for car loans, people have to pay more for student loans.”
Treasury Secretary Jack Lew has also been urging lawmakers to cooperate and act sooner rather than later. While the Treasury Department has given a deadline of Nov. 3, this is subject to cash fluctuations, and Lew has warned the damage done by even flirting with a default could be permanent.
— ValueWalk (@valuewalk) October 14, 2015
"We have learned from the past that failing to act until the last minute can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers and negatively impact the credit rating of the United States," he said last week.
If the U.S. did default, it would cause other countries to lose confidence in U.S. Treasury securities, leading to higher interest rates on U.S. debt because of the perceived riskiness of funding the government. This could cause the stock market to crash and the dollar to depreciate in value -- all bad outcomes for the U.S. In 2011, then-Federal Reserve Chairman Ben Bernanke said that even failing to meet the debt payment deadline for 20 minutes would cause a huge problem for the United States.
All of these apocalyptic warnings mean that no one in Congress wants to let the country default. But as they scramble to figure out a solution in the coming days, it seems that may be the only factor they agree on as of yet.
"Paul Ryan, who I hope can be the next speaker, very reasonably said last week, 'If the United States missed a bond payment, it would shake the confidence of the world economy,'" Senate Minority Leader Harry Reid said, according to the Huffington Post. "I hope Republicans will come to their senses and pass a clean bill."