President Joe Biden on Tuesday will meet with senior congressional lawmakers in the first of what could be several attempts to solve a months-long deadlock over the U.S. debt ceiling.
Having pierced the $31.4 trillion debt limit earlier this year, the Treasury has resorted to a host of what it calls "extraordinary measures" to continue paying the U.S. government's debt outstanding while ensuring that government operations tick over and Social Security payments arrive on time.
Treasury Secretary Janet Yellen has said, however, that those measures will last only for a few more weeks. She warned that as of June 1, the U.S. risks not only defaulting on its debt but also running out of cash to fund the federal government.
"It's essential that the debt ceiling be raised in a timely way so that the U.S. government can pay all of its bills when they're due. A failure to do that would be unprecedented," Federal Reserve Chairman Jerome Powell said last week.
"We'd be in uncharted territory, and the consequences to the U.S. economy would be highly uncertain and could be quite averse."
With that risk looming, President Biden -- who has long demanded that lawmakers pass clean legislation to either suspend or increase the debt ceiling without the promise of unplanned spending cuts -- will meet with the so-called Big Four congressional leaders later today to hammer out a solution.
He won't like the outcome.
House Speaker Kevin McCarthy (R-California), who failed 13 times to command the confidence of his Republican colleagues earlier this year, last month was able to marshal support from 217 GOP lawmakers to pass a related bill. That legislation would tie a one-off $1.5 trillion increase in the debt ceiling to spending cuts of $4.8 trillion spread over the next 10 years.
Senate Democrats, of course, would likely never allow it to pass. But the mechanics of McCarthy's bill have nonetheless outflanked Biden's efforts to clear enough debt-market runway to fund the $1.7 trillion spending bill passed at the tail end of the last Congress.
First, the McCarthy bill would raise the debt ceiling by only a small amount -- around 4.5% of the current limit -- and only until March of next year, when it would resurface smack in the middle of Republican presidential primaries.
At that point in the political calendar, the U.S. economy may well be tipping into recession and all anyone will remember is that GOP leaders wanted spending cuts and Democrats fought against them.
Had Biden attempted to bypass McCarthy shortly after he was elected House Speaker in early January -- when his influence over the 222 Republican lawmakers in Congress was its weakest -- he would have needed only five GOP votes to push through a Democratic solution to the impasse.
A Small Plate of Bad Debt-Limit Options: Yellen
Complicated House rules, however, left only two possible dates for such a tactic: May 22, which is too soon to get a deal done, and June 12, which is likely too far past the so-called X-date to avoid a U.S. default.
That leaves Biden with only a handful of options -- all of them unpalatable.
He could argue that lawmakers have agreed to a clean debt-ceiling increase 29 different times over the past 45 years, but others would note that on 32 occasions over that same period, debt-limit increases were paired with spending cuts.
Biden could also note that the Republicans gave President Donald Trump three separate debt-ceiling increases, although others would remind him that the final increase in 2019 included a promise of $77 billion in offsets to the existing budget.
The president could also invoke the 14th Amendment to the Constitution, which deems "the validity of the public debt of the United States ... shall not be questioned".
Rolling the dice on that, however, would undoubtedly trigger a constitutional crisis, a near automatic lawsuit and the near certainty of the president's ultimate authority on debt being decided by a Supreme Court currently dominated by six Republican-appointed justices.
It may solve the issue altogether, and forever, or end his hopes for a second presidential term on the spot. That's a huge gamble for any leader, even more so for one looking to thwart the reelection aims of his bitter rival.
Curiously, a group of U.S. government workers, represented by the National Association of Government Employees union, sued both Biden and Yellen this week, demanding that the debt-ceiling statute be declared unconstitutional.
Biden could also, of course, agree to at least a cursory form of spending offsets -- as was the case in 2019 under Trump -- in order to win at least a temporary reprieve from the debt-ceiling noose. But that only hands Republicans a win in terms of their newfound reputation for financial austerity heading into next year's election cycle.
It would also make him look irredeemably weak.
"There are a variety of different options, but there are no good options. Every option is a bad option," Yellen told CNBC earlier this week. "The only option that really leaves our economy in good shape -- and our financial system -- is raising the debt ceiling."
The Markets Don't Care About the Debt Ceiling - Yet.
The markets are still, for the most part, nonplussed. And although short-term government-borrowing costs are on the rise -- reflecting the increased risk of default -- broader U.S. Treasury bond yields are mostly tracking the interest rate path of the Federal Reserve as opposed to the debt drama inside the Beltway.
That could change, however, if Biden is unable to broker an agreement with McCarthy, Senate Minority Leader Mitch McConnell and House Minority Leader Hakeem Jeffries later today in Washington.
A week is a long time in politics, and three weeks should be more than enough for lawmakers to come to the conclusion everyone agrees is inevitable: The U.S. will pay its debts.
What that conclusion costs, at least in terms of Biden's political capital, remains unclear.
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