Republicans proposed a temporary solution to Democrats to break the parliamentary deadlock and avoid the United States defaulting on its debt payments, while Wall Street and President Joe Biden warned of the potential catastrophic repercussions if this happened.
On Wednesday, Senate Republican Leader Mitch McConnell said in a statement that he wanted to “save Americans a short-term crisis caused by Democrats.”
It would allow his opponents to agree as quickly as possible to suspend the debt ceiling until December.
If approved, the Republican proposal will give some time for Democrats, whose minuscule majority are blocking legislative room for maneuver, to find a longer-term solution.
But Mitch McConnell said this solution goes through a more complex legislative path that the Joe Biden administration has rejected so far on the debt front.
The US Treasury has set October 18 as the date for the United States, the world’s largest economy, to start defaulting on its debts if Congress fails to “raise the debt ceiling”, i.e. increase the country’s ability to borrow.
Pressure has increased significantly in recent days on Republicans, particularly from Joe Biden. The US president, whose position was weakened by the chaotic withdrawal from Afghanistan, and who is facing difficulty in passing major economic and social reforms, does not want this financial disaster.
On Wednesday, he called to the White House in person and via the Internet, prominent figures in the circles of Wall Street to warn of the repercussions of non-payment, which would set a precedent in the history of the United States.
“playing with fire”
“We’re playing with fire,” Citi President Jane Fraser said, and Jamie Dimon, president of JPMorgan, one of the most influential US bankers, warned of the “cascading” fallout from a default. “The world is watching us,” he said, recalling the main role of the US currency and US Treasury bonds on the world’s economy and finances.
Nasdaq chief Adima Friedman said markets would react “in a very negative way” if they defaulted, jeopardizing the savings and retirement pensions of millions of Americans.
And Biden again attacked the Republicans, asking them to “stop the game of Russian roulette” that harms the American economy and the United States’ financial reputation.
The public debt ceiling is the legal maximum for public debt in the United States, and is set at $28.4 trillion. According to the US Treasury, this limit will be reached on October 18.
The date of October 18 is not fixed, but US Treasury Secretary Janet Yellen said Wednesday that “the country’s liquidity will be very little” after this date in the absence of a legislative solution.
Then the government will be forced to cut a large amount of its expenses, and perhaps also in the wages of official employees or in the social allocations for some segments of society.
The United States, like almost all major economies, has been dependent on debt for decades in terms of public expenditures, and it has raised the debt ceiling several times. However, since the presidency of Barack Obama, the Republicans have begun to use this routine legislative maneuver as a tool for political pressure.