A decade ago, a clash between Democrats and Republicans over a surge in America’s borrowing capacity put the country in days of default and prompted a major rating agency to downgrade its credit for the first time.
Following the episode, Mitch McConnell, the top Senate Republican, described the debt ceiling as “a mortgage worth saving” to The Washington Post.
A decade later, the debt limit the United States can assume is again the subject of fierce talks in Washington among Democrats, who control Congress but can’t garner enough votes to raise it unilaterally, and Republicans, who refuse to vote. .
The controversy is unusually significant because without the escalation, the United States could stop paying its bills in October, likely to ravage its economy and undermine a pillar of the international financial system.
Lawmakers have discussed raising the loan limit for decades. But the desire to push the world’s largest economy to the brink dates back to 2011, when Republicans came out to curb Democratic spending and used a cap to do so.
“Most (Republican) leaders believe that the 2011 debt ceiling clash was ultimately a success, because they were able to force (then President Barack Obama) to sign what was to be the biggest part of the bill. The bill was the default in spending cuts in decades,” said Brian Riddle, who at the time was chief economist to Republican Sen. Rob Portman.
The deal he struck was intended to cut government spending over the years.
But it didn’t work out: The United States’ national debt and budget deficit have skyrocketed in subsequent years due to the spending of Republican and Democratic presidents.
Others involved in the 2011 confrontation cautioned that, even without default, risk situations have their own consequences.
Shai Aqbas, director of economic policy at the center, said: “It is difficult to measure the way this may affect our country and its economic might, but it is likely that they are already happening beneath the surface, causing Our credibility is eroding.” of bipartisan politics, who had worked with Federal Reserve Chairman, Jerome Powell a decade earlier.
– Another year, same people –
Some countries have to borrow as much as the United States and, at the same time, must negotiate a periodic increase in the debt they will be able to take.
Congress must not only approve an increase in the debt limit to avoid a “default” but also agree on government financing to avoid the shutdown in late September.
All while negotiating two big spending bills that Democratic President Joe Biden wants to pass.
As in the showdown a decade ago, Senate Republicans are led by McConnell.
Today, senators insist that raising the debt limit is the responsibility of the Democrats in power and that their party will not help them do so.
In 2011, the two sides negotiated a deal aimed at deepening the budget deficit over the next few years, but it was ultimately unsuccessful.
Obama’s Republican successor, Donald Trump, signed tax cut laws that widened the deficit and then two massive spending measures pushed it to a record high in 2020, even as they steered the economy from a worse recession. Stopped.
– a “silly” discount –
Biden signed a third pandemic spending bill and two of his measures under study could further widen the deficit.
The most untimely result of the debt cap freeze in 2011 came shortly after its resolution, when S&P Global Ratings downgraded the country’s credit rating to below its maximum rating, while Moody’s Investor Services and Fitch Ratings, two other major agencies, kept it unchanged. .
“It seemed silly to me” because the country never defaulted, said Warren Payne, who was the chief economist on the Republican-led House Ways and Means Committee at the time of the downgrade.
“There was no intention to allow defaults in 2011. And I think if you look at the statements of members of Congress now, there is no intention to allow defaults now,” he said.
But it is not yet clear how the default will be avoided.
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