McCarthy has not given any details about Republican deficit-reducing proposal they want in exchange for votes to raise the ceiling but indicated House Republicans "might make some news" when they return to Washington later this month, according to the report.
Last week, McCarthy had reportedly said Republicans could act on their own to tackle the federal government's debt ceiling issue, in the wake of President Joe Biden‘s refusal to negotiate a deal on spending. The House Speaker had said Republicans are close to deciding on a package that could pass the House of Representatives without the participation of the President or the Democrats in Congress...
McCarthy’s Message to Wall Street: You Should Worry About the US Debt Ceiling
- Complains Biden ‘won’t communicate’ on how spending plan
- McCarthy says House will not pass clean debt ceiling increase
Fiscal crisis nears as McCarthy takes debt ceiling plan to Wall Street
The House speaker is set to outline the party’s new proposal at the New York Stock Exchange, more than a decade after a similar GOP-led standoff hammered U.S. markets
The prospects of a slumping stock market, millions of job losses and a shock to the global financial system loom large as McCarthy (R-Calif.) begins the work to sell Wall Street on the GOP’s risky gambit to improve the nation’s financial health. Since assuming a House majority in January, Republicans have pledged to halt the nation’s ability to borrow to pay its bills, seeking to force President Biden to accept steep spending cuts and other policy concessions.
So far, the White House has refused to relent in its opposition, and Republicans themselves have splintered at times over how to approach the fight. The standoff only has raised the stakes for McCarthy, since the consequences of congressional inaction — the first-ever government default — could devastate an economy already teetering on the precipice of recession.
“It will be financial chaos,” predicted Mark Zandi, the chief economist at Moody’s Analytics, when asked about a potential brush with default. “Our fiscal problems will be meaningfully worse. … Our geopolitical standing in the world will be undermined.”
McCarthy’s office did not respond to a request for comment.
At stake is the U.S. government’s credit: Washington must borrow money to pay for expenses that both parties have incurred, but it can only do so up to the maximum allowed by federal law. Lawmakers periodically must suspend or raise that threshold, known as the debt ceiling, or the government cannot cover its costs, possibly including interest payments on its bonds, triggering a default.
The United States technically reached the debt limit — now set at roughly $31 trillion — earlier this year. That prompted the Biden administration to begin taking special budgetary measures in January so it could continue borrowing money and avert a fiscal crisis. But those moves are only temporary solutions meant to buy extra time on Capitol Hill, where lawmakers may have as little as seven weeks to act.
A failure to do so could prove catastrophic, according to the Treasury Department, which has called on Republicans in increasingly urgent terms to raise the borrowing cap without conditions. Yet House Republicans refuse to lift the limit unless they first can achieve a vast set of demands opposed by the White House. GOP leaders aim to slash federal spending, claw back unspent coronavirus aid, undo Biden’s student loan cancellation plan and adopt a slew of other policies, including new rules that force Medicaid recipients to work longer hours in exchange for health insurance.
While Biden has refused to haggle over the debt ceiling, he has expressed an openness to meeting with McCarthy to discuss broader fiscal issues. Still, the two men have not spoken at length since their initial chat in February, as the president argues the GOP first should issue a budget — and Republicans, who have failed to finalize such a spending blueprint, maintain the issues are separate.
“They haven’t put anything on the table, other than saying they want a clean debt ceiling, which, that’s not really an option,” said Rep. Garret Graves (R-La.), who has led discussions on the issue for McCarthy.
By taking his message on Monday to Wall Street, McCarthy aims to assuage skittish investors, rally his party and burnish his own political legacy, according to Republican lawmakers and conservative advisers. Some likened it to Reagan’s pitch to traders at the New York Stock Exchange in March 1985, when the president called for low taxes and steep cuts to domestic spending. (His plan still added to the federal deficit.)
“He’s probably trying to reassure investors and Wall Street … that Congress is capable of doing something, and we’re going to do something,” said Rep. Steve Womack (R-Ark.), a top appropriator, who said the slew of unresolved issues in the debate serve as a “test” for McCarthy.
But Womack and other Republicans acknowledged that the “real question” is if their own party can shore up the 218 votes needed in the House to pass a bill. With tensions simmering among the GOP’s far-right and moderate ranks — and only four votes to spare in a narrow majority — Republicans said they need to show progress if they hope to put new pressure on Democrats.
“I’m hopeful that Wall Street gets the message and sends it right down Pennsylvania Avenue to the White House, because we’ve been trying to get that message across, and the president refuses to engage in negotiations in good faith,” said Rep. Ben Cline (R-Va.), a conservative Republican who sits on key spending and budget panels.
McCarthy’s speech takes place against the backdrop of a tumultuous stock market, roiled in recent months by a slew of corporate layoffs, a trend of high-yet-improving inflation, a recent string of bank failures and the looming fear of another recession. Economists at the Federal Reserve increasingly believe such a downturn is likely later this year, according to March meeting details released this month, a possibility that adds to the pressure on Washington to avoid making matters worse.
Some economists see a further hit to growth if Congress adopts the still-emerging GOP plan, which aims to slash federal spending on health, education, science and labor programs by about $130 billion. Zandi predicted that real gross domestic product could fall by about 0.6 percent and reduce employment by 720,000 jobs in the fourth quarter of 2024.
If the economy does enter a recession, though, Republicans’ proposed cuts to federal spending could make the downturn “much deeper, prolonged and much more difficult for the economy to ultimately recover,” he added. And Zandi — along with other economists — said a default could create other shock waves globally three years after the coronavirus pandemic hammered economies around the world.
But Republicans have forged ahead anyway on a belief that they must act swiftly to address the national debt, which is expected to surge to $52 billion by 2033, according to projections released earlier this year from the nonpartisan Congressional Budget Office. Both parties have added considerably to that imbalance, from the tax cuts adopted by Republicans in 2017 to the more recent social spending packages enacted under Biden, though GOP lawmakers still blame Democrats.
“My view is that the crisis at hand is the debt; it’s not that we might not pass the debt ceiling,” said Stephen Moore, the chief economist for the right-leaning Heritage Foundation. “It’s that we can’t just stay on this path. There will be a financial train wreck.”
Moore faulted the Biden administration for “running around the country and saying we’re not going to be able to pay our debt,” noting that U.S. tax revenue would still help it pay bondholders and fulfill some of its obligations. “We’re probably not going to have enough money for the Department of Education, and the Department of Energy and the Interior Department. … Would it be that horrible if the Department of Education were shut down for three weeks?”
But even the renewed sense of fiscal brinkmanship threatens to create costly economic turbulence in the months to come.
In 2011, a similarly resurgent GOP squared off against another Democrat, President Barack Obama, as conservative tea party lawmakers demanded equally steep spending cuts. The two sides ultimately avoided default after brokering a sweeping deal that slashed government programs and capped federal agencies’ spending for the next 10 years, dismaying Democrats, who say the cuts harmed average Americans.
Yet the mere prospect of a fiscal doomsday still carried dire consequences, precipitating a downgrade in U.S. credit that cost taxpayers $1.3 billion in 2011 by driving up interest rates on government bonds, according to a report issued a year later by the Government Accountability Office.
Over that summer, the Dow Jones industrial average also sank by about 2,000 points. It plummeted sharply on Aug. 8, 2011 — the first day of trading after Standard & Poor’s downgraded U.S. sovereign debt — by more than 630 points. At the time, the 5.6 percent tumble marked the sixth-largest drop in index history, and it proved then to be the worst day of trading since the 2008 financial crisis, spooking policymakers and investors alike.
More than a decade later — as McCarthy prepares to speak after the opening bell in the nation’s trading hub — many Republicans admitted privately they would be watching the markets closely for another spot reaction. Yet some in Washington acknowledged that it may well take a more severe economic disruption just to force a resolution to the country’s fiscal standoff.
“You can’t rule that out,” said Douglas Holtz-Eakin, president of the American Action Forum, a conservative advocacy group, as he echoed the need for drastic action to reduce the federal debt. “Both sides are dug in. They’ve shown no signs of moving. Something has to change the landscape to incentivize the White House and Congress to move.”
Kevin McCarthy’s NYSE Remarks Expected to Focus on Debt Ceiling as Limit Approaches
House Speaker Kevin McCarthy is expected to focus on the approaching debt limit in remarks Monday morning at the New York Stock Exchange, as he seeks to appease his fractious party while averting a crisis that could devastate the U.S. economy.
The California Republican and other members of his party are moving toward a framework that could raise the debt ceiling into 2024, allowing for about $2 trillion in spending, the Washington Post reported Saturday, citing people familiar with the matter.
