Democrats in Congress are scrambling to find a way to raise the U.S. debt limit, and the “catastrophic” default will be in less than three weeks to avoid what the chorus of executives and policymakers is warning.
Republicans have repeatedly refused to support an increase in the country’s arrow. On Tuesday, the opposition, led by Senate minority leader Mitch McConnell, blocked a path that could have allowed Democrats to go it alone and raise the bar by a party-line vote in the upper house.
The stalemate means the Senate’s top Democrat, Chuck Schumer, now has about 20 days to find a way to raise the debt limit before Oct. 18, when U.S. Treasury Secretary Janet Yellen warned that meeting with the government would end its obligation to debtholders.
“This is what Congress can do in this day and age,” said Jim Manley, a former aide to Democratic Senators Harry Reid and Ted Kennedy.
He added: “So far, we as a country have not suffered economic consequences due to such political games, but at some point someone is going to make a mistake and something bad is going to happen to the country.”
Investors are already worried about “stagnation” – increasing inflation and the prospect of lower economic growth – U.S. stocks have suffered their biggest losses since Tuesday to May.
Steffel’s policy analyst Brian Gardner said: “Investors should note that there is no clear way to deal with the debt limit. This could be exciting for a few weeks in Washington which could add to market volatility.
Top Democrats appear divided on the best way forward, with Schumacher rejecting a complex legal strategy known as budget reconciliation that would only allow him to raise the debt limit through the Senate with a Democratic vote.
“Using a drawn-out and complex process is a lot more risky, a lot more risky,” Schumer said Tuesday.
But when asked about using the mechanism, Democratic Speaker of the House of Representatives Nancy Pelosi told reporters, “We’ll see what our options are.”
With little room for error and the fastest deadline approaching, Corporate America has begun to sound the alarm bells. Jamie Damon, chief executive of JPMorgan Chase, said Tuesday that the bank has begun preparations for a “potential catastrophic event” of U.S. credit default.
“Every time it comes, it’s okay, but we should never get close to it,” Daemon told Reuters.
A spokesman for the bank said Morgan Stanley, another major US lender, was also planning to default on US credit.
The Business Roundtable, one of Washington’s top business lobby groups, said Tuesday that failure to raise the threshold would create “unacceptable” risks for the U.S. economy.
The growing debt crisis comes at a time when Democratic lawmakers and the White House are battling the possibility of a government shutdown this weekend, as well as an infighting that has jeopardized President Joe Biden’s entire domestic legal program.
Democrats originally sought to pass a bill that would continue to fund the federal government to increase the federal limit. However, that bipartisan bill failed amid Republican objections in a party-line vote in the Senate Monday night.
Despite three times increasing the times limit when Donald Trump was in the White House, Republicans now object to lifting the orron limit and accuse Democrats of irresponsibly spending federal funds.
This puts pressure on Democrats that they could use a different mechanism to keep the government afloat and avoid a shutdown before Friday 12.01. Republicans have said they will sign a “clear” government-funded bill if it does not include a provision to increase the orrow’s limit.
At the same time, Democrats on Capitol Hill are locked in separate talks to rescue Biden’s ambitious plans for a 1. 1.2 TN bilateral infrastructure package and a 3.5 3.5 billion big budget deal that would make unprecedented investments in social services.
Pelosi said the House will vote on the infrastructure bill – which has already passed the Senate – but dozens of progressive Democrats have threatened to torpedo the move, insisting they will vote against it if they do not vote on the big budget bill.
Eric Platt, Andrew Ezcliffe-Johnson and Joshua Franklin in New York and James Polity in Washington Additional Reporting
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