Mitch McConnell says GOP won’t strike a deal with Democrats for the US to pay its bills on time, raising risk of derailing the economic recovery

mitch mcconnell
Senate Minority Leader Mitch McConnell, R-Ky., does a cable news interview before the start of a two-week recess, at the Capitol in Washington, Wednesday, June 23, 2021.

  • McConnell ruled out GOP cooperation with Democrats to raise the debt ceiling.
  • “I can’t imagine there will be a single Republican voting to raise the debt ceiling after what we’ve been experiencing,” McConnell told Punchbowl News.
  • Treasury Secretary Yellen warned of an “absolutely catastrophic” hit to the recovery if the debt ceiling isn’t raised.
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Senate Minority Leader Mitch McConnell said that he doesn’t envision any Congressional Republicans voting alongside Democrats to renew the federal government’s authority to pay its bills.

That raises the prospects of derailing the economic recovery if the debt limit isn’t raised quickly enough.

“I can’t imagine a single Republican in this environment that we’re in now – this free-for-all for taxes and spending – to vote to raise the debt limit,” McConnell told Punchbowl News, adding Democrats would have to raise it alone in a party-line bill that’s taking shape.

The Kentucky Republican’s remarks represents a major warning to Democrats as they begin assembling a $3.5 trillion reconciliation plan that’s poised to clear Congress without GOP votes. That’s the legislative pathway for certain bills to be approved with only a majority vote.

The federal government’s borrowing authority is set to end on July 30.

Treasury Secretary Janet Yellen urged lawmakers to raise it as she testified before a panel last month, raising alarm about an “absolutely catastrophic” hit to the economic recovery if the government’s borrowing authority isn’t renewed. Raising the debt limit doesn’t mean federal spending will increase.

If the federal government defaults, Yellen said it could trigger a chain reaction of cash shortages starting with US bond holders that include individuals, businesses, and foreign governments.

The Treasury Department can tap into emergency powers to keep payments flowing until a certain date. But Yellen told Congress it’s tough to predict when those will be exhausted this summer given the economic uncertainty stemming from the pandemic.

Republicans voted to suspend the borrowing limit in July 2019 for two years under President Donald Trump. Experts say Democrats could raise the ceiling in a reconciliation package sometime this fall. But that would require them to list a numerical figure because of the process’s strict budgetary rules, opening the door for GOP political attacks on Democrats as big spenders while the national debt tops $28.5 trillion.

On Wednesday, Republican Sen. Lindsay Graham of South Carolina is set to hold a press conference about Democrats’ “reckless tax and spending spree.”

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Treasury Secretary Janet Yellen warns of ‘absolutely catastrophic’ hit to economic recovery this summer if US can’t pay its bills on time

janet yellen fed
  • On Wednesday Secretary Yellen asked Congress to extend a July deadline to pay back some of the federal debt.
  • Without an extension, she warned of a “catastrophic” default that could hurt economic recovery.
  • Some in the GOP have signaled they want spending cuts in exchange for increasing the debt ceiling.
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Treasury Secretary Janet Yellen urged Congress on Wednesday to extend a July 31 deadline to pay down a portion of the federal government’s $28 trillion in debt to investors and foreign governments.

Without the extension, she warned of an “absolutely catastrophic” default that would imperil the nation’s economic recovery from the pandemic.

“I think defaulting on the national debt should be regarded as unthinkable,” she told the Senate Appropriations Committee, calling it “utterly unprecedented in American history for the US government to default on its legal obligations.”

Though borrowing is a routine cycle the federal government uses to keep the country running through the sale of bonds, it’s reaching its “debt ceiling” on July 31 and needs to service its debt before it can borrow more. The Treasury has some ability to keep payments flowing beyond that date, but Yellen said it could exhaust those measures sometime in August during the month-long Congressional recess. Increasing the debt ceiling does not mean additional federal spending.

If the federal government defaults, Yellen said it could jumpstart a chain reaction of cash shortages starting with US bond holders, which include individuals, businesses, and foreign governments.

“I believe it would precipitate a financial crisis,” Yellen said. “It would threaten the jobs and savings of Americans and at a time we’re recovering from the COVID pandemic.”

Congress last suspended the borrowing limit in July 2019 for two years under President Donald Trump. Yellen also emphasized the pandemic is causing uncertainty around the Treasury’s emergency powers to step in with emergency payments if it became necessary.

Some Republicans have signaled they will press for spending cuts in exchange for signing onto a debt ceiling increase, despite supporting a surge of red ink under Trump. Among many Democrats, memories of a 2011 brawl between House Republicans and President Barack Obama on the debt ceiling are still fresh, as it sent stocks tumbling and caused the first downgrade to US credit.

“This is a page from the Obama-era economic sabotage playbook, and I’m not going to let Republicans play games with the economy for their political benefit,” Sen. Ron Wyden of Oregon, chair of the Senate Finance Committee, told Insider in April.

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The national debt will nearly double by 2051 if taxing and spending stay the same, CBO says

US capitol
The Senate side of the Capitol is seen in Washington, early Monday, Nov. 9, 2020.

  • A new report from the CBO forecasts the federal debt to nearly double to 202% of GDP by 2051.
  • The CBO sees the government’s budget deficit declining after the pandemic before rising again.
  • The outlook hinges on taxing and spending laws staying the same, the CBO said.
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The federal government’s debt pile is on track to nearly double over the next three decades, according to the nonpartisan Congressional Budget Office (CBO).

Government debt swelled over the past year as lawmakers passed stimulus bills aimed at helping Americans through the COVID-19 recession. The increased spending led federal debt to reach 100% of gross domestic product at the end of 2020.

Should current laws for taxing and spending stay the same, that share is estimated to reach 102% of GDP by the end of this year, the CBO said in its long-term outlook report. Federal debt would then reach a record-high 107% of GDP in 2031 and nearly double to 202% of GDP by 2051, the office added.

The federal budget deficit – the amount that government spending exceeds tax income – is projected to fall to 10.3% of GDP this year from 14.9%, still the second-highest level since 1945. While it will stay elevated, the shortfall will decline as as pandemic-related expenses fade, the CBO said. Deficits will total 5.7% of GDP in 2031 and soar to 13.3% by 2051, according to the report.

The report doesn’t account for the $1.9 trillion stimulus package currently making its way through the Senate. House Democrats approved the measure on Saturday, and President Joe Biden has indicated he aims to sign the bill before expanded unemployment benefits expire on March 14.

Officials including Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell have repeatedly sought to dispel fears that the government won’t be able to finance its own debt. Near-zero interest rates ensure that, at least for now, the government’s cost of borrowing remains relatively low.

Yet the recent jump in Treasury yields signals those rates could climb sooner than previously expected. After the bond market saw elevated volatility last week, investors continued dumping government bonds on Thursday, betting on new stimulus to fuel a swift recovery and stronger inflation. The Treasury market is now pulling forward expectations for a rate cut from after 2023 to sometime in 2022.

Higher rates, when coupled with surging debt, can place the government in a compromised position, the CBO said.

“A growing debt burden could increase the risk of a fiscal crisis and higher inflation as well as undermine confidence in the US dollar, making it more costly to finance public and private activity in international markets,” the office added.

The CBO’s report could give Republicans more firepower with which to slam Democrats’ stimulus proposal. Senate Democrats advanced the bill on Thursday in a party-line vote, starting a lengthy debate process that Republicans are set to use as a roadblock for the plan’s passage. Discussion will be limited to 20 hours, teeing up a final vote for the weekend after a marathon amendment process.

The gloomy debt projections also don’t account for the large-scale infrastructure plan Biden aims to pass. The president has already started talks with lawmakers about a multitrillion-dollar infrastructure push that would further boost economic growth coming out of the pandemic.

If it passes, the proposal stands to give the national economy a shot in the arm – and to further increase the country’s debt pile.

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