House Republicans Hold Full Faith and Credit of the United States Hostage - Horowitz

House Republicans Hold Full Faith and Credit of the United States Hostage - Horowitz

The United States reaps major economic benefits from its status as the world’s dominant reserve currency, including lower interest rates on its debt. Maintaining this advantageous position in the global economy---one which is under increasing challenge by China and Brazil, among others-- depends on the full, faith and credit of the United States continuing to stand for a firm and unwavering guarantee of repayment.

 

Yet, House Republicans are once again engaging in dangerous brinksmanship on the debt limit, essentially threatening default unless the Biden Administration makes significant policy concessions. The legislation they recently passed, for instance, ties a one-year increase in the debt limit to a nearly complete roll back of incentives for non-carbon producing renewable energy and other climate initiatives, making it dead on arrival in the Senate.  As Speaker McCarthy (R-CA) well knows, raising the debt limit is required to pay for bills the federal government has already incurred. During the Trump Administration, House Republicans respected this basic economic reality and helped pass debt limit increases routinely.

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Now that a Democrat has returned to the White House, it is apparently “back to the future.”  Reprising some of their worst moments during President Obama’s tenure, House Republicans are once again playing Russian roulette with the full faith and credit of the United States.  This time MAGA extremists are playing the role that Tea Party members played in 2011 and 2013 and Speaker McCarthy is doing their bidding in much the same way that Speaker Boehner did the Tea Party’s bidding then.  

 

In fact, House Republican irresponsibility in 2011 resulted in an unprecedented downgrading of the credit rating of the United States by Standard & Poor’s.  As the credit rating agency wrote then, “The political brinksmanship of recent months highlights what we see as American governance and policymaking becoming less stable, less effective and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become bargaining chips in this debate over fiscal policy,”

 

The appropriate place to have a debate about the level of future spending is over the federal budget and spending priorities going forward—not by threatening to not pay the bills we’ve already run up if we don’t get our way. These threats during the Obama Administration not only had significant economic costs; they also inflicted political damage to House Republicans as most Americans strongly disapproved of this course of action.   This history, of which Speaker McCarthy who was in Congress at the time and already moving into a leadership role is familiar, should serve as a cautionary tale.

 

We will begin to see if Mr. McCarthy has learned any of the lessons of past House Republican debt limit debacles when he meets today with President Biden at the White House to discuss a resolution to this dangerous impasse, joined by Senate Minority Leader Mitch McConnell (R-KY) and House Minority Leader Hakeem Jeffries (D-NY).  Secretary of the Treasury Janice Yellen estimates that her use of “extraordinary measures” to enable the United States to continue to pay its bills without a debt limit increase will be exhausted in the early part of June.  In other words, the clock is ticking.

 

The speaker is in a politically difficult position, given his narrow majority and the unreasonable demands of the MAGA wing. It will be interesting to see if House Democrats get any traction by persuading so-called House moderate Republicans to sign on to a discharge petition forcing a vote on the floor on a "clean debt limit increase."  Even getting just a few of them to do so, could paradoxically help Mr. McCarthy by giving him more leverage with his far-right members.

 

Still, Kevin McCarthy sought the speakership, knowing that he would have to successfully navigate these kinds of difficulties. This is an opportunity for him to demonstrate some real leadership, departing from the politically craven followership, which is the political brand that over his career he has well earned. With the nation's economic credibility hanging in the balance, now is the time for the speaker to put country first.