With Kevin McCarthy as Speaker, Congress faces a messy debt ceiling fight — and Biden might have to mint a trillion dollar platinum coin

To get elected Speaker, Kevin McCarthy had to reach a series of agreements with the GOP holdouts.
Those included using the debt ceiling as leverage to slash spending on Democratic priorities like Social Security.
Biden could technically sidestep Congress by minting a $1 trillion platinum coin to avoid default.

If your idea of fun was watching CSPAN on a Friday night to see if Republicans could elect a Speaker of the House, get ready for even more dramatic months to come.

Kevin McCarthy was finally elected Speaker of the House of Representatives around midnight Saturday after making a series of concessions to some of his GOP colleagues. Their agreements focused on slashing spending for Democratic priorities like Social Security, Medicare, and other federal investments for education and labor.

These GOP demands could be especially problematic for President Joe Biden as Congress will have to raise the debt ceiling by mid-2023. Raising the debt ceiling means increasing the legal amount of debt the federal government is able to issue in order to keep paying for programs already mandated by Congress. Failure to do so risks a default that could imperil the entire financial system.

The US could hit its debt ceiling by midyear, and Republicans plan to use the impending debt ceiling deadline as leverage to force through their spending cut demands — like cuts to Medicare and Social Security.

If this predicament sounds familiar, that's because it's something Congress dealt with in 2021. Senate Minority Leader Mitch McConnell was staunchly opposed to helping Democrats raise the debt ceiling at the time, leading the government dangerously close to a crisis before ultimately coming to a short-term agreement that raised the limit to its current level.

The White House continues to maintain the debt ceiling should not be used as political leverage. "We have said that we should not be using the debt ceiling as a matter of political brinkmanship," White House Press Secretary Karine Jean-Pierre told reporters on Friday, noting that Congress raised the ceiling three times during the Trump administration without forcing major concessions.

Republicans intend to make this time different. "Make no mistake, the debt ceiling issue in and of itself is intended to leverage better policies moving forward as it relates to spending," GOP Rep. Adrian Smith of Nebraska told The Washington Post. "I think we shouldn't shy away from that."

Rep. Tom Cole, the incoming chair of the House Rules Committee and a key McCarthy ally, said the new GOP majority intends to make clear that it won't accept the status quo.

"It can't be just a credit card limit that you raise without changing the way you spend money, and I think we made it very apparent in the rules package that we intend to change the way we spend money," Cole, an Oklahoma Republican, told reporters off of the House floor last week as McCarthy was fighting for his speakership. Importantly, the debt ceiling isn't tied to new spending — it allows the government to pay for what Congress has already appropriated.

Even the mere threat of default can cause calamity. In 2011, amid another debt ceiling standoff between congressional Republicans and then-President Barack Obama, S&P downgraded the US' credit rating, which top officials at the rating agency said was due to the delay in raising the debt ceiling. The Government Accountability Office later estimated that the drama raised borrowing costs by a total of $1.3 billion in Fiscal Year (FY) 2011.

Mark Zandi, chief economist at Moody's Analytics, found that a prolonged debt ceiling crisis would cost the US up to six million jobs, The Post previously reported last September. There would also be significant blowback to international markets.

President Biden may have some options to cut through the dilemma, including what's become known as "minting the coin." A platinum coin could help Biden sidestep this drama and avoid sending the US into default. As Insider previously reported, a loophole in the law would allow the Treasury Department to mint a $1 trillion platinum coin and deposit it into the Federal Reserve, allowing the US to continue paying its bills without putting the task on Congress or formally issuing new debt.

It's an idea former President Barack Obama even considered as he was contending with raising the debt limit, saying in 2017 that there "were all kinds of wacky ideas about how potentially you could have this massive coin."

Still, Biden's administration had previously rejected going that route. Other possibilities include using the 14th Amendment to sidestep the debt ceiling. Section 4 of the amendment states that "the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned," and some legal scholars have suggested that means that the US cannot constitutionally default.

Democratic lawmakers insist that avoiding a government default is not a game Republicans can play.

"That is an obligation every member needs to take seriously," Democratic Sen. Chris Van Hollen of Maryland told the Post. "We will repeat, again and again, there is a line in the sand here, and we're not going to give the extreme Republicans their wish list in exchange for them simply allowing the country to pay its bills on time."

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Contributer : Business Insider https://ift.tt/6QpiqHl

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