A report released by Moody's Analytics on September 21 warns that failure to raise the ceiling on the U.S. national debt and to renew the spending authority of the U.S. Treasury when it expires on September 30 will lead to a default that "would be a catastrophic blow to the nascent economic recovery from the COVID-19 pandemic."
Senate Republicans on Monday night blocked the bill that would fund the government and raise the debt ceiling, bringing the United States to the brink of both a government shutdown and an economic recession.
Not a single Republican voted to advance the funding bill, which had passed the House a week ago and would prevent the government from shutting down at the end of Thursday, when the current funding bill expires.
The country will reach the ceiling on its ability to borrow to pay its debts in early October. If it isn't raised, the country will default, sending it into an economic tailspin that Moody's said would cost 6 million jobs and $15 trillion in household wealth.
The report said that a default would particularly hurt the U.S. bond market, generally considered a relatively safe place to invest for retirement.
Treasury bonds are basically loans to the government made by investors that are paid back by a specified date; a default would mean the loans are not repaid on time. "Americans would pay for this default for generations, as global investors would rightly believe that the federal government's finances have been politicized and that a time may come when they would not be paid what they are owed when owed it. To compensate for this risk, they will demand higher interest rates on the Treasury bonds they purchase. That will exacerbate our daunting long-term fiscal challenges and be a lasting corrosive on the economy, significantly diminishing it."
The report said a potential default would be "cataclysmic":
Stock prices would be cut almost in one-third at the worst of the selloff, wiping out $15 trillion in household wealth. Treasury yields, mortgage rates, and other consumer and corporate borrowing rates spike, at least until the debt limit is resolved and Treasury payments resume. Even then, rates never fall back to where they were previously. Since U.S. Treasury securities no longer would be risk free, future generations of Americans would pay a steep economic price.
Democrats slammed their GOP colleagues, with Rep. Adam Schiff of California calling their refusal to close debate on the legislation and move to a vote on it before the deadline "craven."
"Every single McConnell Republican just voted to blow up the entire economy and start a depression for no reason except because the President is a Democrat," Rep. Bill Pascrell (D-NJ) tweeted.
"Mitch McConnell just 2 years ago: 'America can't default. That would be a disaster.' Now he's flirting with that disaster because he thinks it'll notch him a political win," Sen. Sheldon Whitehouse (D-RI) tweeted.
Senate Minority Leader Mitch McConnell said when Donald Trump was in the White House that not raising the debt ceiling would be catastrophic.
But now that President Joe Biden is in office and Democrats control both chambers of Congress, McConnell is refusing to provide any Republican votes, saying Democrats have to do it on their own with a more complicated procedural maneuver.
"We will support a clean continuing resolution that will prevent a government shutdown," McConnell said Monday. "We will not provide Republican votes for raising the debt limit."
Congress raised the debt ceiling three times on a bipartisan basis when Trump was president and McConnell served as Senate majority leader.
"Note that Democrats never filibustered the debt limit under Bush and actually provided most of the votes for cloture under Trump," Seth Hanlon, a senior fellow at the Center for American Progress, tweeted. "What McConnell is doing now is unprecedented, disgraceful, and dangerous."
Republican members are claiming that they don't want to raise the debt ceiling because Democrats are working to pass Biden's economic plan, which would provide funding for infrastructure such as roads and bridges, paid family leave, child care, and added dental and vision benefits under Medicare.
But the raising the debt ceiling means enabling payments on the debt the United States has already accrued, not on future spending. While Trump was in office, Republicans helped add $7.8 trillion to the national debt, the third biggest increase as a share of the size of the economy under any president in U.S. history, the Washington Post reported.
It's unclear what will happen next, as Republicans bring the economy to the brink.
House Speaker Nancy Pelosi tweeted on Monday night, "The full faith & credit of the United States should not be political. Republicans' reckless decision to block government funding & raising the debt ceiling threatens 6 million jobs, financial ruin for countless families, military paychecks & Social Security payments to seniors."
Published with permission of The American Independent Foundation.