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Debt limit fight in Washington: will the U.S. default on June 1?

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It’s déjà vu all over again.  Today Treasury Secretary Janet Yellen warned the United States will be unable to pay its bills on June 1 – unless the debt limit is raised.  Now.

It feels like the Washington summer of 2011. Debt limit politics were hurtling Congress and the White House towards a default for the first time in its history. On August 5 of that summer, Standard & Poor’s, surveying a battlefield of stalemate and brinkmanship, lowered the credit rating of the United States.  It cost US taxpayers tens of billions of dollars in higher interest rate payments. S&P said:

“The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge.” 

That was then.

American policymaking and political institutions are significantly weaker today.

The debt limit – the number of dollars the overall national debt can reach – is set by Congress by statute.

The amount of debt reflects the money Congress has voted to spend and the tax revenues that are collected.  

In Washington, when Congress refuses to increase the debt limit, it means Congress is refusing to pay for the expenditures it has required the government to spend.  Raising the debt limit means authorising a higher level of national debt to cover spending that has already happened.

The debt limit is like your credit card:  each month, you have to pay back the money you have spent – or you go into default.  

The politics of the debt limit are invidious.  For three decades, Republicans have played “gotcha”: with the debt limit – especially when Democratic presidents are in the White House. 

Why play “gotcha”? To go after those wild-spending, reckless radical Democrats with their out-of-control programs that add to the deficit and bankrupts the country. To get an edge in the next election for control of the House and the Senate.

It does not matter that the currency of debt-limit-gotcha politics is counterfeit – nothing to lose in making the attack.

In 2011, the Republicans demanded, with the debt limit approaching $14.3 trillion, President Obama accept $2 trillion in spending cuts – cuts that would reach deep into Medicare and a host of other domestic programs – in exchange for $800 billion in new revenues.  

It was a searing confrontation.  On August 1, Vice President Joe Biden met with the House Democrats to discuss what was an unholy mess. (I was in the room, and this is recounted in my book with Bryan Marshall, The Committee).  That day, Biden said:

“The whole debate and debacle is not about the debt limit or the deficit. It’s about fundamentally altering how government functions. They are using the deficit they created to decimate the social structure of this country. You [the Democrats in Congress] have educated us all to how far out these guys are.  There are 100 in the House and 10 in the Senate who would take this country over the cliff.”

Those “far out guy” numbers among the Republicans in this Congress have doubled.

Last week, with Joe Biden as president, House Republicans voted to raise the debt limit – provided Biden accept their cuts of $4.8 trillion in everything from health care to education to child nutrition to clean energy, and much more.

Joe Biden remembers all the lessons from the closest of calls with default 12 years ago. Those “far out guys” are now the Trump MAGA Republicans with their slash-and-burn agenda and priorities. Biden hated being muscled by them then and he has no intention of surrendering to them now and allowing them to “decimate the social structure” of the United States.

Biden also knows what the Republicans did when Trump was president. Those same Republicans increased the debt limit 3 times, by $7.8 trillion – with no government spending cuts and huge tax cuts that primarily benefited the wealthiest Americans.

Biden is asking the Republicans simply to do what they did for Trump 3 times. They have refused. They were not shocked by the Trump deficits, but the Biden deficits are a catastrophe.

Biden is done playing this game. 

This is why he says he is happy to discuss government taxes and spending until the cows come home – but that raising the debt limit is “not negotiable.”

The current debt limit impasse is more dangerous than the 2011 crisis, for three reasons:

  • Republican Speaker McCarthy has told colleagues that the spending cuts passed by the House – by a 1-vote margin – was not a “ceiling” but a “floor” on spending cuts.  In other words, he has no intention of retreating from those cuts. He cannot give them up. As Senate Majority Leader Chuck Schumer has said:

“He’s (McCarthy) stuck. How is he going to negotiate when he’s promised everyone he’s not going to change the bill? … His passing a bill was a step backward and brought us closer to default.”

  • A default by the United States is likely to plunge the economy into a recession that will last well into next year.  While Republicans will get the blame for starting it, President Biden will get the blame for not ending it – just as he faces the voters for re-election in 2024.
  • There are no guardrails on how radical the Republican mood is. As Norman Ornstein, a leading US political scientist, advised last week:

“Far more than in 2011, a hard core of hard-core extremists in the House would be fine with a default. For many, blowing up government would make the price of economic chaos worth it; for others, the likelihood that a default would be blamed more on the president makes it a tempting ploy.”

President Biden is not going to dismantle his legislative achievements to capitulate to Republican demands to cut spending and cripple his presidency when they rewarded Donald Trump’s uncontrolled fiscal binges.

This crisis is much harder.   Democrats will not give in to the Republicans taking the debt limit hostage and using it to harm the livelihoods of tens of millions of Americans. In the House, McCarthy dare not cut a deal with Biden that fails to get a majority of his caucus to support it. And even if he does reach a deal with Biden, the Republicans in his caucus may well move to oust him.  In the Senate, any deal with Biden has to get the support of no less than 10 Republican votes. Those votes do not exist today.

The alchemy to solve this problem – substantively or procedurally – has not been invented yet.

This calculus means that default is more likely now than at any time in American history.  More likely now than when Biden faced this crisis and spoke to the Democrats 12 years ago.  

Bruce Wolpe is a Ticker News US political contributor. He’s a Senior Fellow at the US Studies Centre and has worked with Democrats in Congress during President Barack Obama's first term, and on the staff of Prime Minister Julia Gillard. He has also served as the former PM's chief of staff.

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Calls for tougher protest laws following terror attack

Former minister urges NSW-style protest restrictions after synagogue arson, calling for stronger action against antisemitism.

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A former minister of the Andrews government has criticized Victoria Police for overlooking terror symbols in Melbourne and is urging state Labor to adopt stricter protest regulations akin to those in New South Wales.

Philip Dalidakis, who served from 2015 to 2018, linked the recent arson attack on the Adass Israel synagogue to a failure in public safety measures.

He is advocating for the introduction of protest permits and enhanced police authority to disperse gatherings.

Prime Minister Anthony Albanese has labeled the synagogue attack an act of terrorism, a stance not shared by Victorian Premier Jacinta Allan, who refrained from such a designation to avoid hindering police investigations.

She characterised the attack as designed to instill fear within the Jewish community.

Community fear

Albanese signaled that the attack fits the definition of terrorism due to its intent to incite community fear.

He highlighted Labor’s commitment to Jewish community safety, referencing $25 million allocated to enhance security and an additional $32.5 million pledged.

Opposition Leader Peter Dutton condemned the attack as a national disgrace and accused Labor of failing to address rising antisemitism.

He, along with former Liberal treasurer Josh Frydenberg, called for a formal terrorism designation and the formation of a police taskforce against antisemitism.

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Assad granted asylum in Russia amid regime change

Bashar al-Assad granted asylum in Russia; Biden emphasizes opportunities and risks post-Assad era in Syria.

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Former Syrian President Bashar al-Assad and his family have been granted political asylum in Moscow, according to a source from the Kremlin reported by TASS.

Assad, who was last in Damascus on Saturday, fled the country early Sunday, as confirmed by both Syrian and Arab security officials.

Russia’s foreign ministry indicated that he had officially stepped down and left the country.

Though Assad planned to address the nation Saturday evening, the speech never took place.

His wife and children had previously departed for Russia in late November, with his brothers-in-law moving to the United Arab Emirates.

Potential risks

President Biden referred to the fall of the Assad regime as a “historic opportunity” for Syrians to shape their future.

He acknowledged both the potential and risks involved.

Biden credited his administration’s actions, such as supporting conflicts in Ukraine and Israel, for weakening Assad’s position by diverting the resources of his allies: Russia, Iran, and Hezbollah.

He reiterated the ongoing U.S. sanctions against Assad’s regime.

The U.S. plans to send senior officials to the region and provide humanitarian aid to support the Syrian people during this transition. Biden confirmed that the U.S. military presence in eastern Syria will continue, particularly to secure prisons housing Islamic State members.

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Young men profit from risky crypto and political betting

Young men are increasingly investing in risky crypto and political bets, yielding high returns despite potential risks and disadvantages.

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Young men are increasingly taking risks in cryptocurrency and political betting, reporting substantial gains as markets rise.

Investments by young men are significantly outperforming traditional ones.

A diverse portfolio consisting of bitcoin, gold, GameStop, and DraftKings yielded a 62% return in 2023.

Many young male investors view their speculative trades as a pathway to traditional goals, supported by the entertainment aspects of mobile trading. However, owning cryptocurrency and meme stocks is influenced by gender attitudes. Data from the Pew Research Center shows a stark disparity between young male and female investors in crypto ownership.

Political expectations

The recent surge in bitcoin prices is partly due to favorable political expectations surrounding the newly elected administration. Political betting has also grown, with a majority of participants being male and under 30.

Many young men feel compelled to pursue risky investments due to economic pressures and perceived barriers. While they report higher earnings, nearly half claim to face discrimination, contributing to feelings of alienation.

The pandemic fueled increased retail participation in investing, especially among younger demographics. Influencers on online platforms significantly impact investment decisions, often promoting risky behavior.

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