Defaulting on the national debt is much closer than anyone realizes


Washington is lurching dangerously close to a self-induced financial calamity. It’s so bad no one even agrees whether they should negotiate on raising the government’s borrowing authority.

Consider the positions held by two lower-profile lawmakers who derive great influence from being advisers to and close friends of the most powerful players in this standoff.

Rep. Garret Graves (R-Ga.), deputized by House Speaker Kevin McCarthy (R-Calif.) to negotiate a debt plan, jokingly compared President Biden to a British monarch refusing to meet with Parliament. “We sent a telegram to Buckingham Palace to let them know that they’re not in charge anymore,” Graves said Friday, two days after his deal narrowly passed the House with only GOP votes.

“We actually have a Congress, we have a people’s House that they have to negotiate with,” he said.

Negotiate? No chance, according to Sen. Christopher A. Coons (D-Del.), a close Biden ally.

“The question here is, should we default and should we reward holding the threat of default as a hostage? No, and no. It’s not real complicated,” Coons said in an interview Thursday.

Graves believes that McCarthy has done his job by winning approval for a bill that would lift the debt limit into next year while also imposing nearly $5 trillion in reduced spending. Coons dismissed that “gauzy, broad but unspecific” House proposal as merely an attempt at holding the full faith and credit of the U.S. Treasury hostage.

Like other Democrats, Coons is willing to haggle over federal spending levels in the annual process for funding federal agencies in the House and Senate Appropriations committees. But that negotiation can only begin once Republicans agree to separately raise the debt limit without any strings attached.

Both sides cite the otherwise conflicting precedent here.

Congress has oftentimes raised Treasury’s borrowing authority without any strings attached, as lawmakers did twice in 2021. But in times of divided government, the debt limit has often been raised as part of a broader budget deal, as it was in 2019 under House Speaker Nancy Pelosi (D-Calif.) and in 2011 under Speaker John A. Boehner (R-Ohio).

That Coons, 59, and Graves, 51, are taking these diametrically opposed views should make Wall Street titans pay much closer attention to this political game of chicken.

A graduate of Yale Divinity School, Coons chairs the Senate Ethics Committee. He’s served as co-chair of the bipartisan National Prayer Breakfast. He’s a regular participant in bipartisan rump caucuses that get big things done when partisan toxicity prevents congressional leaders from reaching deals.

Graves grew up in politics as an aide to one of Louisiana’s legendary dealmakers, Billy Tauzin (R), a former House chairman. He’s so well liked by his GOP colleagues that McCarthy pleaded with him earlier this year to not run for governor and chart his career in the House. He then deputized Graves to lead the “five families” meetings.

What do Graves and Coons think their side has to do in the weeks ahead? Nothing.

“Our job is to pass something, the Senate’s job is to pass something, the White House’s job is to either sign it or to negotiate,” Graves told reporters Friday. “And so I’m not sure what else we can do, other than do our job, send them a bill, and now it’s 100 percent in their lap.”

“Any negotiation, quote-unquote, about the debt ceiling is a negotiation about whether we should default. The answer is simple, and the answer is no,” Coons said.

One missing ingredient to all this bluster is an official deadline, something that will hopefully come very soon from Treasury Secretary Janet L. Yellen. Once analysts have finished the incoming and outgoing cash flows of tax season, Yellen can issue what insiders call the X date for the deadline when Treasury will run out of budget gimmicks for handling the more than $31 trillion national debt.

Without additional borrowing authority, government bills will go unpaid and a first-of-its-kind default could happen, sending international financial markets reeling at a moment when the economy is teetering on the brink of a recession.

Congress, in this era, simply doesn’t take things seriously until there’s a formal deadline, so it’s possible that cooler heads will prevail when countdown clocks start to appear on cable news shows.

And, to be clear, a couple of dozen House Democrats have signed on to a framework with several dozen Republicans to set up a commission to recommend long-term deficit-reduction measures in exchange for raising the debt limit.

“However you want to frame it, we’ve got to sit down and talk. And so I think it’s critically important that all the parties sit down, at the White House with the president, and start having these conversations. And they should meet every single day until they get there, together,” Rep. Josh Gottheimer (D-N.J.), co-chairman of the bipartisan Problem Solvers Caucus, told reporters Friday.

But those House Democrats, having lost the majority in last November’s elections, lack the leverage to actually start such talks. Instead, from the relatively moderate Coons to a fiery liberal like Sen. Elizabeth Warren (D-Mass.), Senate Democrats view even a modest concession, such as a relatively powerless debt commission, as a reward for taking this hostage.

“The problem with that approach is that it signals to the rest of the world that America’s commitment to paying its debts is contingent on some underlying political negotiation over spending that is otherwise too damn contentious to get through on its own,” Warren told reporters Thursday.

But this Democratic approach seems to assure that little will happen until the deadline draws perilously close and then, at that momentous hour, assumes House Republicans will cave out of fear for getting blamed for tanking the economy.

That strategy, so far, is nowhere close to working. House Republicans in swing districts are digging in for a protracted fight and expressing little interest in passing a so-called clean debt hike. They are demanding spending cuts that will begin to rein in the debt.

“It’s certain that if we don’t raise the debt ceiling our economy will crash, but if we don’t do things to limit spending, our economy will also crash,” said Rep. Nick LaLota, one of six New York Republicans on the Democratic target list for next year’s elections. “Reasonable people should adopt that dual-pronged understanding.”

“We have to negotiate. Passing a clean debt ceiling [hike] is not going to happen. He’s going to have to meet us partway,” Rep. Don Bacon (R-Neb.), whose district favored Biden by 6 percentage points in 2020, recently told reporters.

Democrats also seem to be betting that Senate Republicans will step in as more mature political actors and defuse this situation, but even one of the most productive dealmakers is supporting McCarthy’s approach.

“This bill is not the final deal, but it opens the door for a negotiated deal,” Sen. Bill Cassidy (R-La.) said Thursday.

Cassidy noted that in past fiscal showdowns, the perceived victor tended to be the one that made the other party look most reckless.

“Partly the public perception of this is going to be really important,” he said.

Republicans believe they can win the political standoff by making Biden and Democrats look petty by refusing a basic negotiation. Fresh off his narrow win on his debt bill, McCarthy held a valedictory news conference Wednesday evening in Statuary Hall.

“The Democrats need to do their job. The president can no longer ignore [us] by not negotiating,” McCarthy said.

A couple of minutes later, Schumer rose to speak in the Senate. All he did was file some procedural motions on judicial nominations.

No legislation to raise the debt limit is under consideration. Instead, Schumer is scheduling votes on four judges. With the House off for the week, McCarthy will lead a congressional delegation to Israel.

Graves thinks the Democrats have shifted their original demands — the “show us your plan” mantra that hinted a negotiation would occur — because they bet on the always fractious GOP caucus to face plant on Wednesday’s big vote.

Now the Democratic message is simply no talks at all. “They continue moving the goal line,” he said.

But Coons is equally confused by the GOP demands, believing Republicans just need to completely fold.

“This isn’t that hard,” he said. “Am I right? What am I missing here?”


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