The United States government is approaching its legal borrowing capacity of $38.381 trillion, sparking concerns of a possible economic crisis as the President Joe Biden and House Republicans struggle to reach a deal. The Treasury Department projects that the government will reach its borrowing limit on Thursday, an artificial cap that lawmakers have increased around 80 times since the 1960s. However, markets remain calm as the government can temporarily rely on accounting tweaks to stay open, meaning that any threats to the economy are several months away.
This particular moment seems more fraught than past brushes with the debt limit due to the broad differences between Biden and new House Speaker Kevin McCarthy, who presides over a restive Republican caucus. These differences increase the risk that the government could default on its obligations for political reasons, which could rattle financial markets and if not resolved, plunge the world’s largest economy into a wholly preventable recession.
Biden is insisting on a clean increase to the debt limit so that existing financial commitments can be sustained, refusing to even start talks with Republicans. McCarthy is calling for negotiations that he believes will lead to spending cuts. It’s unclear how much he wants to trim and if his fellow Republicans would support any deal after a testy start to the new Congress that required 15 rounds of voting to elect McCarthy speaker.
The Treasury Department has imposed “extraordinary measures” to keep the government operating until at least June, giving the pair several months to forge a deal. However, years of intensifying partisan hostility have led to a conflicting set of demands that jeopardize the ability of U.S. lawmakers to work together on a basic duty.
White House Press Secretary Karine Jean-Pierre has said that it’s the constitutional responsibility of House Republicans to protect the full faith and credit of the United States, but did not say whether the White House sees signs that a default is off the table. McCarthy, on the other hand, believes that Biden needs to recognize the political realities that come with a divided government and calls for a level of fiscal restraint that did not occur under President Donald Trump.
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