Congressional lawmakers were set to leave Washington Thursday for the long holiday weekend without locking down a debt deal just days before the U.S. could potentially default.
On Wednesday, House Speaker Kevin McCarthy (R-CA) had insisted that the standoff over raising the debt ceiling was “not my fault.” He added that he remained optimistic that the two sides could come to an agreement before a deadline that’s just days away.
Treasury Secretary Janet Yellen has warned repeatedly that June 1 will be the day the government runs out of money, after having imposed “extraordinary measures” to prevent default when the U.S. reached its $31.4 trillion debt limit on January 19.
Some Republicans, such as Reps. Matt Gaetz of Florida and Ralph Norman of South Carolina, have voiced skepticism of Yellen’s deadline, demanding on the House floor that she “show her work.”
Late Wednesday, the Fitch Ratings agency placed the United States’ AAA credit on “ratings watch negative,” warning of a possible downgrade because of what it called the brinkmanship and political partisanship over lifting the debt ceiling.
In 2011 the U.S. suffered a rating downgrade by Standard & Poor’s when the country came close to defaulting amid the rise of the conservative tea party movement in the House.
A credit downgrade could mean higher interest rates, including those for fixed mortgages, and it could send the stock market plummeting. On the first business day after the S&P’s downgrading in 2011, the Dow fell 5.5%.
Further, consumer confidence fell more than 20% during the 2011 standoff.
Though the debt ceiling has been raised cleanly, without any strings attached, in years past, House Republicans have passed legislation that ties a short-term debt ceiling hike to decade-long spending cuts.
The bill, which passed in the House along partisan lines, includes cuts to veterans’ benefits and work requirements for Medicaid recipients. It has been deemed unacceptable as-is by President Biden and Congressional Democrats.
Not reaching a deal before the June 1 deadline would be “catastrophic,” Yellen has warned.
“Household payments on mortgages, auto loans, and credit cards would rise, and American businesses would see credit markets deteriorate.” she has previously warned. “On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”
Wall Street analysts have further noted that a stock market plunge as a result of debt default could wipe out 6 million jobs and $15 trillion in wealth.
