(Bloomberg) — Senate GOP leader Mitch McConnell is offering Democrats an agreement on raising the U.S. debt ceiling into December, alleviating the immediate risk of a default.
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The proposal would push back the partisan confrontation over the debt ceiling but not resolve it. It would increase the ceiling by a fixed dollar amount that would be sufficient to tide the Treasury over until December.
“This will moot Democrats’ excuses about the time crunch they created and give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation,” McConnell said in a statement.
Although both lawmakers in both parties say the U.S. must not be allowed to default, raising the debt ceiling is a political hot potato that neither side wants to hold. McConnell is putting his offer out as a compromise, but it also would tie Democrats to raising a specific level of debt — rather than a suspension as done under the Trump adminstration — and that number can be used in political attack ads during the 2022 congressional election campaigns.
Even though most of the debt being covered was accrued under Trump, Republicans have been attempting to link the need to raise the debt limit to the trillions Democrats want to spend to enact most of Biden’s domestic agenda.
“It’s just pure politics. It’s stupid and it’s wrong,” Vermont Democratic Senator Patrick Leahy said.
News of McConnell’s offer helped propel a rebound in stocks, with the S&P 500 Index up 0.2% as of 2:15 p.m. after the gauge had tumbled as much as 1.3% earlier. Wall Street had become increasingly anxious this week over the risk of default. Goldman Sachs Group Inc. warned of a “real risk” of Congress failing to act in time before the Treasury’s borrowing authority ran out.
Senate Majority Leader Chuck Schumer hasn’t received an offer according to a spokesman, who declined to comment about whether Schumer would agree to it.
But several Democrats were quick to dismiss McConnell’s offer. Senator Mazie Hirono of Hawaii said she feels no pressure to support it.
“What kind of an offer is that?” she said.
Dick Durbin of Illinois, the No. 2 Democrat in the Senate, simply said “we’ll see” if McConnell’s offer works.
Schumer plans to hold a procedural vote Wednesday to advance a bill that would suspend the debt ceiling until December 2022. Republicans are expected to block it.
McConnell is demanding Democrats raise the debt limit using a more cumbersome process known as reconciliation that is being employed for legislation to enact much of President Joe Biden’s agenda and exempts it from any GOP filibuster.
Schumer has said there isn’t enough time to use reconciliation, but a short term increase in the ceiling would provide that time. However McConnell’s offer holds the prospect of another default risk occurring around the time Democrats likely try to pass their economic package, which they say they hope to finish drafting by the end of October.
Budget experts have said using reconciliation would take about two weeks. Treasury Secretary Janet Yellen projects that the U.S. will reach its limit on sovereign debt on about Oct. 18. The Bipartisan Policy Center think tank on Wednesday put the estimated date of a payment default between Oct. 19 and Nov. 2.
A default could have catastrophic results for the economy that include raising the cost of borrowing by driving up interest rates, rattling financial markets and delaying Social Security payments to the elderly.
At a White House meeting of financial and corporate executives convened by Biden on Wednesday, JPMorgan Chase & Co. Chief Executive Jamie Dimon said the effects of a default “would be cascading, so day one would be bad but the cascading effects in the ensuing weeks could go anywhere from a recession to a complete catastrophe for the global economy.”
(Updates with markets, additional background, Dimon remarks beginning in third paragraph)
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