Thursday, October 07, 2021
Suspended game postponed to December
US insolvency has been averted
The Biden government can breathe a sigh of relief: Democrats and Republicans come to an agreement on a compromise on the debt ceiling, literally at the last minute. The insolvency of the USA is off the table. But only until December. Then there may still be a “shutdown” threat.
After days of struggle, the US Congress has for the time being averted the insolvency of the world’s largest economy. The Democratic Senate majority leader Chuck Schumer announced an agreement with the Republicans in Washington that the debt ceiling would be raised for two months. The proposal was introduced by the Conservative Senate minority leader, Mitch McConnell.
“I have good news: we have reached an agreement on extending the debt ceiling until December,” said Schumer in the Senate. He hopes to see them off “today”. The announcement was preceded by hours of negotiations. “The Senate is moving ahead with the plan I outlined yesterday to save Americans from a Democratic-induced crisis,” McConnell said of the deal.
The Republicans’ concession came shortly after US President Joe Biden, US Treasury Secretary Janet Yellen and several influential company directors held a round table warning of a “catastrophic” US default. Yellen said that if the US defaults, a recession is “likely”. Because of the pioneering role of the USA, there was also a threat of global economic turbulence. Before the agreement was reached, the US was heading for insolvency, which would probably have left the country unable to pay its debts on October 18 for the first time in its history. The purpose of raising the debt ceiling is to repay money that has already been borrowed.
Blockade via blocking minority in the Senate
In fact, the now laboriously reached agreement is postponing the parliamentary debate to the end of November. In addition to the debt ceiling, Congress must also agree on a new budget by the beginning of December if it wants to avoid the paralysis of the federal institutions, the so-called “shutdown”. While the debt limit has been suspended or raised dozens of times under presidents of both parties in the past few decades, the Republicans are now standing opposite. With its blocking minority in the Senate, the party is blocking a suspension of the debt ceiling via the normal legal channels.
With the temporary deal, McConnell is pushing the Democrats to adopt a special path known as “reconciliation” for a permanent solution. The Democrats wanted to avoid this; they find this procedure too time consuming and risky. In addition, they do not want the Republicans to be relieved of responsibility for jointly dealing with the country’s debt burden, especially since the debts also go back to Trump’s tenure.
The Democrats accuse the Republicans of blocking Biden’s political agenda and wanting to wreak havoc before the next congressional election. Biden accused the Republicans of “playing Russian roulette with the US economy”. Since Barack Obama’s Democratic presidency, the Republicans have used the debt ceiling as a means of political pressure.