Staring Down The Barrel: Debt Crisis, Govt. Shutdown, Imminent

President Joe Biden and Vice President Kamala Harris meet with business and labor leaders on Thursday, July 22, 2021 in the Roosevelt Room of the White House. - Official White House Photo by Adam Schultz

The U.S. Government will shut down by midnight on Thursday. 

The Senate has failed to pass a bill that would both fund the government and raise the debt ceiling. 

The bill, which passed along party lines in the House last week, died in the Senate Monday night, as Democrats failed to secure the 60 votes needed to overcome the filibuster and pass the bill. Senate Minority Leader Mitch McConnell (R-KY) had sworn Republican opposition to the bill and was successful in unifying his fellow Republican Senators around opposing the bill. 

“Sen. McConnell rarely ever asks us to vote in a particular way, but on this one, he’s made his wishes known, and I don’t think he’s bluffing,” Sen. John Kennedy (R-LA) told the Hill in the days leading up to the vote. 

Kennedy had publicly stated that he may very well vote yes on the bill, given that it includes vital emergency hurricane relief funds for his state. The senior senator from Louisiana wound up changing his mind and voting against it, keeping the vote stuck along party lines. 

Other Republican Senators had voiced support for a spending bill, however, they also stated that it must not have a measure to raise the debt ceiling attached to it. Sen. Kennedy told reporters that he saw no way forward for the legislation to get the 10 Republican votes needed to pass the 60-vote filibuster-proof threshold. 

“I don’t think they’re going to get 10 Republican votes, and I’ve told the White House that,” Sen. Kennedy said.

Government shutdowns are not unheard of, especially recently. Since 1980, there have been 10 government shutdowns which involved a furlough of federal employees. Since 2010, there have been three; once under President Obama and twice under President Trump. 

However, for a nation that is still reeling from the pandemic, a government shutdown would be particularly terrible. According to an agency shutdown plan obtained by Reuters, roughly 62% of all CDC employees, essential to fighting COVID-19, could be furloughed. Roughly three in five Federal workers will be barred from showing up to work, instead being forced to stay at home without pay. 

Last Thursday, the White House began telling U.S. executive departments and agencies to get ready for the shutdown, in a move that administration officials attempted to explain away as standard practice for when a shutdown is possible.

The possibility of a shutdown is not what has most people worried; the threat of the federal government defaulting on its debts is.

 Periodically, Congress has to raise the ‘debt ceiling’, which is the cap on the total amount of money that the federal government is authorized to borrow in order to function. The Bipartisan Policy Center estimates that the U.S. Treasury will run out of funds sometime between Oct. 15 and Nov. 4.

Should this occur, the federal government wouldn’t be able to pay for anything; federal employees and contractors wouldn’t be paid, Social Security payments would be stopped, and the millions of Americans on food and housing assistance would see nothing to help them. This has never occurred before, and while nobody seems to know exactly what will happen, it’s agreed that the results will most certainly be nothing short of catastrophic.

Moody’s Analytics, a financial services firm, has warned that the economic effects of a default would be felt for generations, even if it were only for a short time. 

“Global financial markets and the economy would be upended, and even if resolved quickly, Americans would pay for this default for generations, as global investors would rightly believe that the federal government’s finances have been politicized,” the firm said in a press release.

Its analysis showed that should a default occur, nearly 6 million jobs would be lost, the unemployment rate would be near 10%, stock prices would fall by a third and roughly $15 trillion in household wealth would be lost. 

As Treasury Secretary Janet Yellen wrote in the Wall Street Journal, a default would most likely lead to “a historic financial crisis that would compound the damage of the continuing public health emergency.”

Still, despite the extraordinary risk posed by this issue, Republicans have continued to refuse to budge on government funding so long as the measure to raise the debt ceiling is attached. 

Instead, Republican Senate Leadership is insisting that Democrats attempt to raise the ceiling by attaching it to the $3.5 trillion spending bill, which the Democrats are attempting to pass through reconciliation (a special process that doesn’t require the same 60-vote threshold).

Curiously enough, the Congressional Republicans had no issue with raising the debt limit multiple times during the Trump administration — many times with Democratic support as well. 

The funding bill’s failure in the Senate has left the Democrats broken, angered, and in a frenzy. Their Congressional leaders are now scrambling to find a way to pass not only a funding bill to keep the government open but also a measure raising the debt ceiling.

“The Republicans are doing a dine and dash of historic proportions… Democrats are going to do the responsible thing and vote to extend the debt limit when the time comes,” Senate Majority Leader Chuck Schumer (D-NY) opined from the Senate floor ahead of the vote. “We will see which of our Republican colleagues on the other side will have the strength, the courage, to follow suit.”

Now the question is who will own it? If the economy does end up collapsing due to the inability of Congress to pass a measure raising the debt limit, which party will face the wrath of the voters? Will the American people notice the quick flip-flop in the Republican stance on the debt limit? Or will the Democrats and Joe Biden face two unimaginable crises, one economic and one political?

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