Economists and business leaders raise alarm about looming debt ceiling deadline

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• Geoff Bennett:

  The U.S. government is expected to bump up against its formal borrowing limit in just a couple of days. The Treasury Department is taking what it calls extraordinary measures to allow the country to keep paying its debts, for now.

  But Congress must vote to raise that borrowing limit, also known as the debt ceiling, in the months ahead.

  Laura Barrón-López looks at the concerns about brinksmanship over the looming deadline.

• Laura Barrón-López:

  The exact timing of when the debt ceiling has to be raised is not yet known, but it's expected by this summer.

  If Congress does not do so, the federal government could face a debt default, and many warn it would be cataclysmic, tanking the country's credit rating and sending interest rates soaring. But a number of House Republicans say the country's accumulated debt, $31 trillion and growing, is dangerously high, and they're threatening to oppose raising the debt limit without some spending concessions.

  Here's how Congressman Chip Roy from Texas put it just a few days ago.

• Rep. Chip Roy (R-TX):

  There are two ways to stop it. Democrats and Republicans sit down and work honestly around the table to stop it, or brinkmanship, forcing the question by bringing it to the brink.

• Laura Barrón-López:

  We will hear more from those backing that position in the days ahead.

  But, tonight, we want to zero in on the potential ramifications that many are warning about.

  Wendy Edelberg is director of The Hamilton Project, a liberal economic think tank, and she's the former chief economist for the Congressional Budget Office. And Neil Bradley the executive vice president and chief policy officer for the U.S. Chamber of Commerce.

  Thanks to both of you for joining us.

  Wendy, I want to start with you, because a number of economists like yourself are warning that, due to this slim House majority, we could be facing something similar to the 2011 fiscal cliff or a potential default itself. What is at stake here?

• Wendy Edelberg, Director, The Hamilton Project:

  I am very, very worried.

  So these are obligations that the U.S. government has already incurred. These are tax and spending laws that have been on the books. And the result of those tax and spending laws is that we are spending more than we're taking in. That requires federal borrowing.

  And so if we get to the point that Treasury then literally doesn't have enough money in its bank account to pay its obligations, the consequences will be bad. The consequences would be worse if Treasury has to choose to not make a payment on a U.S. Treasury, to actually miss an interest payment. I don't see how that could be interpreted as anything but defaulting on the debt.

  My guess is that they would work to avoid that and make those interest payments, but then postpone other payments, payments to federal contractors, payments to federal employees, Social Security recipients, hospitals and doctors who have treated Medicaid patients. There are a lot of people on the other side of those obligations that fully expect the U.S. government to make good on its obligations.

• Laura Barrón-López:

  Veterans' benefits could also be impacted.

  Neil, what are you hearing from members of the chamber about this potential risk?

  Neil Bradley, Executive Vice President, U.S. Chamber of Commerce: Well, there is a lot of concern, when you think about both our debt and deficit, which is a long-term challenge that we face as a nation, and we do need to get it under control.

  But when you think about the implications from defaulting on the debt, something that's never occurred in our entire history, you're talking about wiping out the very underpinnings of the U.S. economy. So everything is really based on this idea of the full faith and credit of the United States government, that the United States government pays its bills.

  That's why, when people buy Treasuries, they're considered risk-free, because no one ever contemplates that the U.S. government won't pay off that Treasury bill. That means that everything else is benchmarked against that Treasury.

  If all of a sudden we call that into question, then everything gets called into question, the ability of the government to pay its bills, to pay seniors, to pay the contractors that Wendy was talking about. And the whole trust in the financial system collapses.

  The result for American families, they're going to be paying a lot more in interest rates from their credit card to their home mortgage loan to businesses, a collapse in demand and an inability to meet basic financial obligations.

• Laura Barrón-López:

  So, Neil, what do you make of this tactic, then, from lawmakers like Chip Roy, Republican from Texas, who seems to be supported by the new speaker, Kevin McCarthy, in this tactic, saying that they are not going to vote to — for a clean increase in the debt limit, unless they get some concessions?

• Neil Bradley:

  Well, first, they're right to be raising the concern about debt and deficit.

  This is a conversation that we should have been having in Washington for the better part of a decade now that politicians from both sides of the aisle have been avoiding. So, kudos to them for bringing up the topic.

  The problem is the tactic. At the end of the day, defaulting on the debt and not raising the debt limit actually makes the problem even worse. If we have a tanking economy, what does that do to the federal fiscal situation? If we default on our debt, and all of those who lend us money charge us a lot more because now there's a future risk that we won't pay them, what does that do to the budget and to the deficit?

  So this is just a bad tactic. Right topic. Glad they're raising it. But you can't actually default on the debt and refuse to raise the debt limit.

• Laura Barrón-López:

  A lot of House Republicans actually voted to increase the debt limit when President Trump was in power, about three times, I think.

  But, Wendy, the Washington Post recently reported that part of the concessions that Kevin McCarthy made to become speaker to a lot of the — this faction within his conference, his hard-line faction, part of it had to do with this payment prioritization plan when it comes to the debt limit and the U.S. paying its debts.

  What exactly does that mean? And can it be done?

• Wendy Edelberg:

  What this bill contemplates doing is telling Treasury that they have to prioritize making payments on interest, Social Security recipients, making payments with regards to the defense sector, and Medicare payments.

  Now, what that would mean is that we would see far larger cuts for all of the spending outside of those areas. Now, try to get that exact same amount of money in savings that Treasury is trying to come up with on any given day, and make it only about a far smaller part of the federal budget, and you're talking about very significant delays on paychecks for federal workers, on money going to state and local governments for education, on doctors and hospitals that are treating Medicaid patients, very long delays in those payments.

• Laura Barrón-López:

  And so some call this a — go ahead, Neil.

• Neil Bradley:

  I worked out the House Republican leadership in 2011 when we looked at this. We came to the conclusion that it didn't work, for all the reasons that Wendy just said, but then also another fundamental one.

  Think about your household budget, and you have a credit card bill and you have your electric utility bill. And one day you decide that I'm going to keep paying my credit card bill, but I'm not going to pay my electric utility bill. You don't think the credit card company's going to think that maybe one day you will stop deciding to pay the credit card company and therefore raise your interest rate and withdraw credit from you?

  The federal government can't simply pick and choose which legal obligations it's going to follow and which ones it doesn't.

• Laura Barrón-López:

  And is this even really a breach? Because they like to call it a breach, but it's still a default.

• Wendy Edelberg:

  Well, what frightens me is that the mere fact that Congress is thinking about this bill, the mere fact that they are thinking about how to navigate this situation, rather than doing everything in their power to avoid this situation, makes me worry that there are actually people in Congress who want the chaos.

  It's playing a game with the U.S. economy and people's lives that I think is irresponsible.

• Laura Barrón-López:

  It appears as though there are at least five House Republicans that don't want to vote at all to increase the debt limit.

  But, Wendy, the White House position is that they're not going to negotiate period with this hostage-taking on the debt limit. Do you think that, even though that appeared to work in 2021, that it's going to work at this time?

• Wendy Edelberg:

  I'm very confident that the White House and Democrats in Congress stand ready to negotiate on future tax and spending laws and changes to those laws.

  What I don't understand is why those negotiations are linked to the debt ceiling. Maybe they're both about borrowing, and so people have gotten confused. One is about backward-looking obligations based on previous laws, tax and spending laws that were enacted, and one is about future.

  There's no logical reason to link these.

• Laura Barrón-López:

  Wendy Edelberg and Neil Bradley, thank you so much for your time.

• Wendy Edelberg:

  Thank you.

• Neil Bradley:

  Thank you.