The "battle" over the US debt ceiling

The debt ceiling is always a hot topic for the Republican and Democratic parties in the US. Photo: Internet

As US lawmakers continue to debate raising the debt ceiling, US Treasury Secretary Janet Yellen has warned that the US government could run out of money by October 18 if Congress does not raise the debt ceiling. If the Democratic and Republican parties fail to reach a consensus on the debt ceiling, the risk of default and shutdown of the US government could occur. And if default occurs, the country's economy could fall into recession.

The story of the US debt ceiling

The debt ceiling is the limit on the amount of money the US federal government is allowed to borrow. According to the New York Times, when the US government has a budget deficit - that is, spending more than it earns - it needs to borrow huge amounts of money to cover expenses such as health insurance, pensions for the elderly, interest, civil servant and soldier salaries, etc.

When debating the debt ceiling, many lawmakers talk about the need for the government to cut spending. However, raising the debt ceiling does not mean the government can implement new programs, but only that it has money to pay off financial obligations that have already arisen. When the debt ceiling is reached, the US will not be able to borrow new loans to pay off old loans that are due, leading to default.

According to the Constitution, only the US Congress has the power to approve the borrowing activities of the federal government. Before the 18th century, every time the government wanted to borrow money through the issuance of bonds, it had to seek the opinion of Congress, a process that was very time-consuming. From 1917 onwards, the US Congress began to apply the public debt ceiling. Accordingly, the government was allowed to borrow flexibly according to its needs, as long as it did not exceed the ceiling.

On August 2, 2019, when Donald Trump was President, the US Congress decided to suspend the debt ceiling for 2 years. By July 31, 2021, the US debt ceiling will increase as much as the actual US public debt increases. At the end of July, the debt ceiling was automatically re-applied at a new level of $28.4 trillion, equivalent to the size of the federal government's borrowing at that time.

So technically, the US hit its debt ceiling on July 31. However, Treasury Secretary Janet Yellen used “extraordinary measures” to avoid default. These measures are fiscal accounting tools that limit government investment, freeing up money to pay off debt as it comes due.

For years, raising the debt ceiling has been an annual affair. But as the political environment has become more polarized, parties have increasingly resorted to tactics that push the debt ceiling issue to the forefront to force concessions from the other side.

The battle over the government budget and the debt ceiling in Congress

Last weekend, the US government was once again pushed to the brink of shutdown as it entered the new fiscal year without a budget plan passed by Congress.

Throughout American history, the government has been shut down many times due to lack of budget, sometimes from a few hours to a few days, sometimes from a few weeks to a few months. The most recent shutdown was at the end of January 2019 and lasted a record 35 days. The reason for the shutdown is always the same: the budget plan was not approved by the Senate.

The impact of these government shutdowns is disastrous for the United States in many ways. However, this scenario of government shutdowns still occurs frequently. The reason is that the two parties, the Democrats and the Republicans, in the United States often disagree, they often do not cooperate with each other, and the opposition does not want the ruling party to achieve success during their term in office.

Therefore, analysts believe that the budget problem in the US is not simply a matter of a lack of real financial resources, but a clear manifestation of political disagreement and interests, and a tool for the Government and Congress to control each other or to bargain on other issues.

Two years ago, during President Donald Trump's term, the Democratic Party on the opposing side had to make concessions on the budget issue to the Republican Party, but now, when the Republican Party is on the opposing side, it is not ready to make concessions.

President Biden is pushing two massive spending packages worth $1 trillion and $3.5 trillion for infrastructure and social security programs, the Biden administration's ambitious spending plans amid the COVID-19 pandemic that has caused a financial crisis.

According to Mr. Biden, the two spending bills above are not left or right, moderate or radical, but bills that make America more competitive and regain its position as a world leader. According to him, opposing such investments will make America's position decline.

Rebuilding infrastructure was one of Biden’s key campaign promises. His proposed spending bill includes subsidies for child care, housing and health care, free tuition for community colleges and subsidies for clean energy, proposals that he says will not add to the national debt because they will be funded by taxes on the wealthy and businesses. Biden says the investments are urgent, given that China spends three times as much on infrastructure as the United States.

However, President Biden's ambitious plan has been opposed by Republican lawmakers, who have called on the administration to have financial principles.

Republicans in both houses of Congress have refused to vote on the issue, even vowing to block Democrats from voting in favor. Instead, Senate Republicans are trying to force Democrats to use a complicated process called compromise to take sole responsibility for raising the debt ceiling. But Democrats have so far rejected the proposal.

US President Joe Biden has proposed a temporary solution of asking Congress to pass a transitional budget and raise the debt ceiling (currently at $28.4 trillion) or continue to suspend the ceiling until December 2022. The President's proposal has been approved by the House of Representatives, where Biden's Democratic Party currently holds a majority. However, the Republican Party in the Senate has firmly opposed it. Currently, the Democratic Party only has 50/100 senators in the Senate and budget-related issues must be approved by the Senate with a majority of at least 70/100 senators. This is a major obstacle for President Biden's administration in the Senate.

In the context of the two parties still fiercely arguing about the debt ceiling, on September 30, US President Joe Biden had to urgently sign into law a temporary budget bill so that the US Government can maintain operations until December 3, 2021. Although this move has temporarily prevented the possibility of a US Government shutdown, the debate between the two parties about raising the Government's borrowing limit in the face of the risk of default has not ended.

What happens if the US defaults?

While the disagreement between the two parties remains fierce, US Treasury Secretary Janet Yellen warned on October 5 that if the two parties do not reach an agreement on raising the debt ceiling, the US could completely default on its debt, pushing the country's economy into recession, as the deadline for raising the debt ceiling on October 18 is approaching.

Earlier, on September 28, US Treasury Secretary Janet Yell stated that after October 18, the US Treasury’s budget “will quickly run out” and may not be enough to cover urgent payments. This means the US government is at risk of default.

Ms. Yellen said that if the debt ceiling is not raised, the government will not be able to pay salaries to public employees, retirees and pay debts when they come due. Ms. Yellen affirmed that raising the debt ceiling does not increase spending but simply allows the US Treasury to have enough budget to fund projects approved by Congress.

If the threat of a US government budget deficit becomes a reality, it would have a range of serious consequences for businesses and erode consumer confidence, while raising borrowing costs for taxpayers and negatively impacting Washington’s credit rating for years to come. In addition, financial markets could be disrupted, causing investors to lose confidence.

According to analysts, the Republican Party's real goal is to prevent Mr. Biden from successfully governing and to aim for the midterm congressional elections in early November next year.

The government shutdown is only temporary, and eventually the Republicans will have to reach a compromise with the Democrats to end the government shutdown. But more dangerous for Mr. Biden's current term in office and for the Democratic Party is the debt ceiling issue. If the debt ceiling is not raised or the debt ceiling is suspended as it has been in the past two years, Mr. Biden will not be able to implement the two massive financial plans he has pledged to deal with the acute respiratory disease caused by the corona virus, stimulate economic growth, create jobs, solve social problems, and upgrade, expand and develop new infrastructure networks in the United States. These two financial plans are at the heart of Mr. Biden's administration, and their success will determine whether the Democrats can protect their majority in the House of Representatives and at least not lose their seats in the Senate in the upcoming midterm congressional elections. Meanwhile, the Republican Party is also determined to win the upcoming midterm elections, also to create the premise and momentum for the 2024 presidential election in the United States.

Amid disagreements between the two parties, US President Joe Biden on October 4 criticized Republican congressmen as "reckless and dangerous" for refusing to join the Democratic Party in raising the US debt ceiling, putting the world's number one power at risk of default.

President Biden stressed that Republican obstruction could put the economy in danger. The US government is unlikely to avoid an economic-crippling default if Democrats and Republicans continue to argue fiercely over raising the debt ceiling.

The administration is also asking business leaders to meet with President Joe Biden to discuss the need to raise the U.S. debt ceiling. The proposed meeting is part of a broader White House strategy to pressure Republicans to vote for a debt ceiling increase or allow Biden’s Democrats to raise the ceiling themselves without procedural hurdles.

The meeting with business leaders is seen as a sign of the desire of executives in the business community to avoid the impact of the battle between Democrats and Republicans over the debt ceiling, while also putting pressure on Republican leaders, who tend to support policies seen as business-friendly.

The White House argues that both parties have previously supported raising the debt ceiling, including multiple times during former President Donald Trump’s tenure, so Biden and his team have used sharp rhetoric to pressure Republicans to vote to avoid default.

It is not clear where the debate between the two parties in the US will go, but it is clear that the ongoing disagreement over the debt ceiling in the US is posing a difficult problem for President Biden, which is to overcome the current division and division in US politics.

According to VNA