ANALYSIS: Debt Ceiling Is High Stakes, and a GOP Opportunity

Get ready for a political showdown! House Speaker Kevin McCarthy has thrown down the gauntlet at President Joe Biden and the Democrats over the debt ceiling. McCarthy’s ultimatum is simple: extend the debt ceiling through May 2024, to $32.9 trillion, but only if the president and Congressional Democrats agree to return roughly $50 to $60 billion of unspent COVID-19 funding to the Treasury, return spending to 2022 levels, roll back the Inflation Reduction Act that passed last year, defund the planned “army” of IRS agents, as well as other funding for the agency, and mandate a work requirement for Food Stamp and Medicaid recipients. McCarthy anticipates the House will pass his proposal sometime this week and move it over to the Senate.

But Biden dismissed the proposal on April 19, setting up a case of high-wire brinksmanship that will play out in the early months of this summer. Both Republicans and Democrats will play it for political advantage.

Why It Has to Happen

Our national debt is 130 percent of our GDP. We could get a debt downgrade over dawdling over the debt ceiling. But we may also get it because of our enormous debt. That’s why this debt showdown has to happen.

The Negotiation, the Politics

The Biden administration plans to politicize the debt limit. McCarthy has given the president his opening position. The White House certainly knows that, in a negotiation, McCarthy has no expectation that Biden will “agree to all these wacko notions.” It is, after all, a negotiation. But the president has chosen to characterize some eminently reasonable positions on the debt ceiling as “wacko notions.” And he has not met with Speaker McCarthy for over 80 days.

I believe the Biden administration will shut down the government and will do so in a fashion that inflicts modest pain—more in the nature of annoyances than actual harm—but on the largest number of voters, all the while blaming the “MAGA Republicans” for the plight. National monuments and parks might shut down at the height of the summer vacation season. Federal offices may shutter. But Veterans’ Administration hospitals will remain open, and Social Security checks will still be mailed out. And most notably, the government will not default on its debt.

The truth is there is enough cash flowing into government coffers to service the debt. A default could only occur if it was deliberate, for politics. The Biden administration’s posturing is entirely performative. It will get more so as the debt ceiling debate intensifies.

That will not be the establishment media narrative, though, even in some of the financial press. They will amplify the Democrats fear-mongering. In 2011, Standard & Poors, the credit ratings agency, downgraded U.S. debt. That will cause Republican representatives and senators in swing districts and states to get antsy. There is already talk of McCarthy not being able to hold a unanimous GOP caucus together as things heat up going into the August recess. Remember, he has only a five-vote margin of control in the House.

Ultimately, the debt ceiling will be extended, although I hope not by much, but likely more than McCarthy’s initial proposal. Stay tuned for more political drama!