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National debt default is much closer than anyone thinks

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

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

Rep. Garret Graves (R-Ga.), Delegated by House Speaker Kevin McCarthy (R-Calif.) to negotiate a debt reduction 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 they are no longer in charge,” Graves said Friday, two days after his deal narrowly passed the House with only GOP votes.

“We actually have a Congress, we have a House of the People 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 hostage? No, and no. It’s not really complicated,” Coons said in an interview on Thursday.

Graves believes McCarthy did his job in winning approval for a bill that would raise the debt ceiling through next year while imposing a nearly $5 trillion spending cut. Coons dismissed this “wispy, broad, but unspecific” House proposal as merely an attempt to hold the full trust and credit of the US Treasury hostage.

Like other Democrats, Coons is willing to haggle over federal spending levels as part of the annual federal agency funding process in the House and Senate Appropriations Committees. But that negotiation can only begin when Republicans agree to separately raise the debt ceiling with no strings attached.

Both parties here cite the otherwise contradictory precedent.

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

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

A graduate of Yale Divinity School, Coons chairs the Senate Ethics Committee. He served as co-chair of the bipartisan National Prayer Breakfast. He regularly sits in the bipartisan rump caucuses that do great things when partisan toxicity prevents congressional leaders from making deals.

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

What do Graves and Coons think of their side in the coming weeks? Nothing.

“Our job is to pass something, the Senate’s job is to pass something, the White House’s job is to sign it or negotiate it,” Graves told reporters on Friday. “And so I don’t know what else we can do, other than do our job, send them an invoice, and now it’s 100% on their knees.”

“Any negotiation, in quotes, on the debt ceiling is a negotiation on whether we should default. The answer is simple, and the answer is no,” Coons said.

One ingredient missing from all this bluster is an official deadline, something that will hopefully come from Treasury Secretary Janet L. Yellen very soon. Once analysts finish tax season cash flows in and out, Yellen can issue what insiders call the X date for the deadline by which the Treasury will run out of fiscal gadgets to manage the national debt of more $31 trillion.

Without additional borrowing power, government bills will go unpaid and a one-of-a-kind default could occur, sending international financial markets reeling at a time when the economy is on the brink of recession.

Congress, at this time, just doesn’t take things seriously until there’s a formal deadline, so it’s possible cooler heads will prevail when the countdowns start to appear in the cable news broadcasts.

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

“However you want to frame it, we have to sit down and talk. And so I think it’s extremely important that all parties sit down, in the White House with the president, and start having these conversations. And they should meet every day until they get there, together,” Rep. Josh Gottheimer (DN.J.), co-chair of the Bipartisan Problem Solvers Caucus, told reporters Friday.

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

“The problem with this approach is that it signals to the rest of the world that America’s commitment to paying its debts depends on an underlying political negotiation over spending that is otherwise too contentious for them to resolve. themselves,” Warren told reporters on Thursday. .

But this Democratic approach seems to guarantee that little will happen until the deadline creeps dangerously closer, and then, at this momentous hour, assumes that House Republicans will cave in for fear of being accused of bringing down the economy.

This strategy, so far, is far from working. House Republicans in swing districts are in a protracted fight and express little interest in embracing a so-called clean debt hike. They are demanding spending cuts that will begin to curb the debt.

“Certainly if we don’t raise the debt ceiling, our economy will collapse, but if we don’t do anything to rein in spending, our economy will also collapse,” said Rep. Nick LaLota, the one of six New York Republicans on the Democratic target list for next year’s election. “Reasonable people should adopt this two-pronged understanding.”

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

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

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

Cassidy noted that in past tax confrontations, the perceived winner tended to be the one who made the other party look the most reckless.

“Part of it, the public perception of it is going to be very important,” he said.

Republicans think they can win the political deadlock by making Biden look mean and Democrats mean-spirited by refusing a basic negotiation. Fresh off his narrow victory over his debt bill, McCarthy held a farewell press conference Wednesday night at Statuary Hall.

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

A few minutes later, Schumer rose to speak to the Senate. All he did was file procedural motions on judicial appointments.

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

Graves thinks Democrats changed their original demands — the “show us your plan” mantra that hinted that a negotiation would take place — because they bet on the ever-fractious GOP caucus to deal with the big vote of Wednesday.

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

But Coons is also confused by the GOP’s demands, believing Republicans just need to pander completely.

“It’s not that difficult,” he said. “Am I right? What am I forgetting here?”

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