WASHINGTON — What would happen to Minnesota and the nation if the United States defaults on its debt?
No one knows for sure because the last time the United States reneged on its debts was in 1789, when the new nation struggled to pay France over wartime debts. But most economists agree a U.S. debt default is likely to have a catastrophic impact, with massive job losses that would push the national unemployment rate to more than 8%, a meltdown on Wall Street that would send 401(k) and stocks and bonds crashing, the shuttering of many businesses and the plummeting of demand for agricultural and manufacturing exports produced in the state, as well as across the nation.
“It’s hard to tell exactly what would happen because we’ve never seen it before, but it would be extremely severe,” said University of Minnesota economics professor V.V. Chari.
Chari also said the impact of a debt default would upend Minnesota in the same way it would the nation as a whole, since Minnesota’s economy is reflective of an “average” in most ways.
The nation must lift the debt ceiling because the federal government will reach the maximum amount of borrowing allowed by Congress on June 1. In January, the total national debt and the debt ceiling both stood at $31.4 trillion. Since 2001, that debt has been increasing at a pace of nearly $1 trillion a year because the federal government has been spending more money than it receives in taxes and revenues.
So the nation has had to borrow more and more money, usually through the sale of treasury bonds across the globe and has had to ask Congress repeatedly for permission to do so. Congress has usually complied, without preconditions. But now the GOP-led House is demanding a series of spending cuts before it would raise the debt ceiling.
President Biden, however, wants to expand federal spending and reduce future debt largely by raising taxes on high earners and large companies.
The partisan divide is wide and not likely to be bridged during Tuesday’s high-stakes talks in the White House on the debt ceiling.
Rep. Tom Emmer, R-6th District, the House majority whip whose job is to keep the narrow GOP majority united on its demand for spending cuts, has been a cheerleader for the Republican plan try to cut the deficit. That plan to cut spending, and raise the debt ceiling until next March was called the Limit, Save and Grow Act of 2023 and approved by the House on a partisan basis last month.
Emmer had joined House Speaker Kevin McCarthy, R-California, in insisting there would be no compromise on the House GOP plan to raise the debt limit, but seemed to modify his hardline stance in an interview with Fox News on Monday.
“You want to prevent a Biden default? Come to the table with ideas or pass our solution that’s sitting in the Senate,” Emmer said in reference to the House GOP debt limit bill.
Meanwhile, Democrats are calling the GOP plan draconian and would balance the budget on the backs of low-income people.
Using an analysis of the proposed 14% cuts to the federal budget prepared by the Democratic staff of the Senate’s Joint Economic Committee, Rep. Betty McCollum, D-4th District, has warned that the House GOP’s plan would put 153,000 people at risk of losing Medicaid coverage in Minnesota, threaten food assistance to 6,000 people aged 50-55 and eliminate preschool and childcare for at least 4,200 children in the state. McCollum also said housing costs and college costs would increase for thousands of Minnesotans, and outpatient care for veterans would be severely curtailed.
“House Republicans want to make deep cuts into everyday programs that Americans citizens and people that I represent count on,” McCollum said in a recent press conference with fellow progressive, Rep. Rashida Tlaib of Michigan. “They want to do it without spelling out what it is, that’s why they linked it to the deficit bill. These are cruel cuts.”
A ‘politically manufactured crisis’
McCollum has also highlighted the impact of a default on the U.S. economy that included sharp rises in interest on all loans, including those for cars, college and credit cards. The average cost of a new mortgage in Minnesota would rise by $140 a month, the Joint Economic Committee said. And the average American facing retirement would suffer a $20,000 drop in their 401(k).
The debt limit was actually hit on Jan. 19, but the U.S. Treasury is using “extraordinary measures” to come up with the additional cash needed to pay its bills. That cash is projected to run out on or about June 1.
Chari and other economists are not disputing that a default would have a tremendous impact on the U.S. economy. He said the first to be affected would be the nation’s financial sector, which relies on U.S. Treasury bonds in their borrowing and lending.
Mark Zandi, chief economist at Moody’s Analytics, agrees.
“This would be a good time to batten down the financial hatches,” he said. “Not because a recession is at hand, it’s not. And not because the banking system is set to unravel, it won’t. It’s because of a politically manufactured crisis around increasing the Treasury debt limit.”
Then the impact of a debt default would be felt by the nation’s exporters, because international credit – based largely on U.S. dollars – would be greatly disrupted. With interest rates soaring and exports falling, businesses will find it difficult to pay their workers and eventually many would fail. So, Tuesday’s meeting on the debt ceiling is brinksmanship at its worst, Chari said.
“The White House … is just as unwilling to compromise as Republicans,” he said.
Polls show the public is split along party lines when it comes to the debt ceiling crisis, with independents slightly more likely to blame the GOP.
A recent Washington Post/ABC News poll found Republicans are just as likely to blame Biden (78%) as Democrats are to blame congressional Republicans (78%). A 37% plurality of independents say they would blame Republicans, with the remainder divided between Biden (29%) and blaming both equally (24%).
Remember how all of our right wing friends use the Second Amendment to their ends regardless of any context of time?
Sorry Kevin. We don’t need a debt ceiling extension.
“The 14th Amendment states that “the validity of the public debt, authorized by law…shall not be questioned.” ”
I do believe all of the debt in question has been authorized by law.
Problem solved…
Wow, that headline is a horrific example of the both-sidesism we get when media cowers to right wingers.
The extreme right threatens to crash the global economy, but”both sides are playing chicken.”
In other news, the war on Russia continues in Ukraine…
Agree as to the headline. And the article is twice as bad in that regard.
So the House passes a bill and it’s their fault?
I’m growing more convinced with each day that passes that the GOP will force us into a debt default. They see how strong the economy is under Biden and would rather bring it all down arbitrarily rather than admit that Democratic economic policies are better for society.
This strong economy keeps improving as the government keeps declaring more and more people poor (expanding Medicaid) and increasing income thresholds for “poorness”. $80 grand gets you free college in Minnesota for Pete’s sake! Because that is poor.
It’s difficult to understand what Republicans are hoping to gain from this confrontation, beyond dinging Biden. “You want to prevent a Biden default?” Emmer said.
But according to the polling, mostly only Republicans will blame Biden for the outcome. One thing is almost certain – that Biden won’t default. Hard as it is to understand Republicans, it’s even harder to imagine Biden instructs Yellen to default on the debt rather than just ignoring the limit.
Point being: Republicans are ceding control to Biden. They’ve demanded concessions to which he won’t agree; meaning he gets to choose the outcome. If his choice fails, he can blame Republicans for creating this fiasco. Their strategy is heavy on risk and very low on reward; it makes no sense.
Cut spending maybe??? How ridiculous to say just agree to overspend for another year and we may talk about reducing what we spend afterwards. Only with other people’s money (tax dollars) does that conversation even come up….. Unreal!!
The debate over spending is part of the budget. The debt ceiling relates to borrowing the money already allocated by congress. In other words, the House GOP proposal is trying to retroactively change legislation already passed by congress and signed into law; much of it during the Trump administration.
To be sure, Congress needs to find a solution to the spending/revenue mismatch. They should submit a budget proposal and commence negotiations. The Biden admin did submit a budget to Congress, but McCarthy has not responded. Instead his caucus has chosen to gamble that they can extort spending cuts during a crisis. It’s a terrible way to legislate.
Wasn’t it a prominent Democrat who once said to never let a crisis go to waste.
The problem is that we have an administration and a group of legislators in DC who are beholden to basically bankrupt our country and have policies that want to spend even more and more money. (sounds like a local problem as well)
But at some point someone needs to be an adult and put on the brakes. Yes, it’s been both sides for far too long. Congress and several POTUS have never really enacted full budgets, only continuing resolutions. We have very few real leaders that want to try rein in our spending. Just imagine how much could be paid for if we weren’t trying to pay for past deficits. And it would be easier on the taxpayers as well. But the longer the debt spending keeps going up and up, at some point the tricks and gimmicks will not work anymore and everyone suffers.
So maybe give McCarthy some credit in trying to get some discussions and action going to actually help our country. But instead, it seems that we have a large electorate that will only side with those that give away more and more money without thinking of the future harm it will do to our younger generations.
You don’t seem to understand that the Repub House can (try to) cut spending all they want in future budgets. 10%, 20% 30%, whatever imaginary figure they want to throw out for “conservative” consumption, but that they could never enact. The current and future budgets are what’s under their “control” (to the extent the hapless “Speaker” McCarthy “controls” anything…)
Repubs can’t, however, cause a default in a budget that has already been passed, and the spending authorized. The president has already been authorized to spend those sums, and if the Treasury has to borrow to do it, that’s the law under any sensible interpretation of the 14th Amendment. To the extent the “debt ceiling” statute provides otherwise, it’s unconstitutional.
As usual, Repubs are demanding something that the Constitution doesn’t permit.
Spending cuts are against the Constitution?
“Wasn’t it a prominent Democrat who once said to never let a crisis go to waste.”
Various sources available through internet searches attribute the phrase to “M. F. Weiner, a renowned US Medical Economist”, suggesting that a medical crisis medical crisis can be used to improve aspects of personality, mental health, or lifestyle.
No doubt prominent Democrats have repeated the phrase and applied to political goals, likewise with Republicans.
A realistic assessment of the psyche of today’s Republican Party could lead one to conclude that there is a health-related crisis in Washington.
“So maybe give McCarthy some credit in trying to get some discussions and action going to actually help our country.”
You don’t give a kidnapper credit for ‘trying to get some discussions going’ when they issue a list of demands.
Joe you were OK with ~ $8T deficit addition under T**** for the uber wealthy, no problem, that is what is unreal! Now we need to screw the low-lower income folks for deficit reduction! Which conversation do you want to have?
Joe, how come this wasn’t an issue when the GQP held the White House?
Anyone who’s been paying attention for the last 40 years knows how this goes Joe. When they’re in control the GOP spends like drunken sailors on leave, not uttering a peep about the budget or deficit. Then the instant a democrat is in office they suddenly rediscover the deficit and demand that the most important thing in the world is to bring it under control by slashing social programs (never the military budget) There’s even a name for it, the Two Santas Strategy. https://www.salon.com/2018/02/12/thom-hartmann-how-the-gop-used-a-two-santa-clauses-tactic-to-con-america-for-nearly-40-years_partner/
Your words mean nothing.
Love Kevin McCarthy staring into the far distance in the picture. And Joe Smith by all means let’s cut spending. Give us a rough plan to put before the voters.
(Monitored out?) As before, our “R” friends would prefer to burn the country and the economy to the ground, can’t rule it, burn it to the ground. They had no problem giving T**** ~ $8T to be divided amongst the uber wealthy! Now, they put the hypocracy of hypocrites to shame.
Good time to batten down the hatches? Politically manufactured crisis? What is one to do, liquidate one’s 401 (k) and stash the cash in a mattress? I think President Biden is right to stand up to this extortion. I hate thinking about how this looming default might play out but I take some satisfaction in knowing that the deluded individuals who voted for the so-called Freedom Caucus members of Congress will also be getting a taste of their own bitter medicine.
Given that the federal government controls the printing presses that make money, a debt default is unlikely. Sometimes, it’s the stupid solutions that are best.
In any event, I think there is at least a possibility that President Biden is using the prospect of this debt default to break the use of debt default generally as a negotiating tactic. A big reason for that is that this time, the president may not have an alternative. That’s because the president’s nominal negotiating partner, Speaker McCarthy is to weak politically to deliver on any deal he makes. That raises the possibility that no debt compromise of any kind as possible, which make finding an alternative to the legislative possible not just deirable but necessary. I t hink this is as good an explanation as any for the president’s lack of interest in dealing with McCarthy.
What would be the consequences of just printing money? Market turmoil would of course be probable. But o defaulting on the debt would be even more tumultuous, in my view. What would be the response to money printing? The Republican response would be problematic. As much as they talk about debt limits, I don’t hear Republicans talk much about supporting debt default. Lawsuits of course would ensue, but those who bring them would incur the wrath of both the widows and the orphans, the obligations to whom, they are seeking to . Ultimately, the matter might land very quickly in the hands of the Supreme Court, and it remains to be seen whether Republicans on this court think they have the political muscle to win an ultimate constitutional Armageddon with this administration,
For myself, I think it’s time. I think the threat to dishonor our debt has been a phony debt, and it is time now to put an end to it. We have to have this battle at some point, why not now?
This article is lame attempt at “both sides are the same.” Biden released a detailed budget proposal weeks ago–Republicans have yet to come up with a budget and trying an end run around the legislative process to force their issues. And, yes, Republicans need to read the 14th amendment.
Joe–when you are ready to discuss the huge deficits caused by the Trump tax cuts, let us know.
Not even Republicans think that America should default on it’s debt. So it just isn’t that big a leap in logic to say that it won’t. Not all problems in life can be solved by the issuance of a one page document. This problem can.
If you are saying that Biden should simply declare (and order) that he will comply with the clear dictate of the 14th Amendment and authorize the Treasury to pay all sums authorized by existing law, even if that entails more borrowing, that’s correct. End of immediate crisis, and House Repubs can then fulminate over it.
The reality is that Biden has no Congressional “partner” who is either negotiating in good faith or possesses the power to negotiate, certainly the weak Speaker McCarthy falls onto both camps. The crisis cannot be solved by bargaining, since McCarthy is not able to enforce any “compromise” that the Freedom Caucus won’t endorse. So there is no bilateral solution possible, and Biden must act unilaterally to save the country from the constitutional crisis the House Repubs have recklessly manufactured.
I agree. McCarthy can’t deliver on an agreement so the president shouldn’t negotiate with him. In the nature of things, any nominal agreement they reach, will never be anything more than the first step on the next round of negotiations whenever that occurs.
You know, nowhere in the constitution does it make provision for a negotiating process. The job of congress is to do it’s jobs, and one of its jobs is to make sure America’s debts are paid. How is it more complicated than that?
It’s not. But a Repub Congress never has any interest in actually legislating; its members are only interested in posturing. We’ve seen this time and time again, yet the electorate either doesn’t care or is oblivious. Or wants chaos.
Although I will say that budget and appropriation bills are obviously too complicated for the IQ of someone like Marjorie Taylor Greene…
Are you saying that you would not be happy with the idea of Marjorie Taylor Greene as your new 401k manager?
Isn’t it worth thousands of dollars of retirement account losses in order to “own the libs”?
Republicans may not “want” a default, but there is a substantial segment of the party that wouldn’t care. If there is a default, and the economy tanks, they have a ready-made talking point for 2024 (“Look what happened when Biden was in office!”). Unless they are more delusional than we give them credit for being (and I’m not sure that’s possible), they have to know that there is no chance of the Administration acceding to their demands. On the other hand, there is no particular political upside for them to agree to pass a clean extension of the limit – their base would look on that as cowardice and weakness, paving the way for even more lunatic challengers to run in the Republican primaries. The economic consequences of a default would just be collateral damage.
The only sensible way out of this situation would be for a few Republicans to cross over and vote with the Democrats, leaving the spending issue for another day. No, that won’t happen. The representatives one might expect to consider the idea are either too enamored of their influence in the House, or they are too weak-kneed to stand up and do it. That leaves unilateral executive action as the only way out.
The upside is that an executive solution could eliminate the need for the debt ceiling charade in future years. One can only hope.
Biden’s comments seem to indicate that his timorous Attorney General idiotically thinks the executive would need to have the Repub courts bless the 14th Amendment position beforehand, which obviously could never happen for a dozen reasons. Asking for permission from the Alito Court indicates the DOJ is living in a fantasy world. So it’s the interest-only specialty bonds or meltdown. Rather discouraging!
Biden quoted Harvard Constitutional scholar Lawrence Tribe as his 14th Amendment source for this and Tribe has since stated that no permission required, you just follow the Constitution and do it: ordering the debts to be paid.
Essentially, that’s what President Lincoln did after the South seceded from the Union. He got his Secretary of the Treasury to issue “greenbacks” to finance the War. It worked.
Only the most mad dog MAGAs can look at Greene, Boebert and Gaetz and welcome them as their new 401k managers.
Every retirement account based on market performance will lose thousands of dollars if this spectacle is carried out. Just so the incompetents above can make a point. Is it really worth that much to “own the libs”?
“It’s hard to tell exactly what would happen because we’ve never seen it before, but it would be extremely severe,” said University of Minnesota economics professor V.V. Chari.
And there we have it. We don’t know, but we know that the sky will fall. Seriously?
If America did default on it’s debt, the consequences could be severe. That is why it isn’t going to happen. I believe the decision was made some time ago, that extraordinary taken of a currently undefined nature will be taken to prevent that from happening. The best evidence of that is the fact that Democrats just haven’t seriously pursued debt ceiling negotiations with the Republicans. President Biden understands that Speaker McCarthy does not control his caucus, and is not capable of delivering the votes needed to pass a serious debt ceiling proposal. That means the solution must be found elsewhere.
The new congress was just sworn in in January. Before that the Dems had the House and Senate and could have passed a debt limit hike.