Rep. Mitch McConnell offers short-term suspension of debt ceiling

By Yashasvini Razdan, 3:00 PM ET

KEY POINTS

-- Two days after making it clear that no member of his caucus would support efforts to raise the US debt ceiling, Rep. Mitch McConnell offered a short-term suspension

-- Treasury Secretary Janet Yellen had earlier warned that the economy would fall into a recession if Congress fails to raise the debt ceiling

Senate Minority Leader Mitch McConnell on Wednesday offered a short-term suspension of the U.S. debt ceiling to avert a national default.

In a statement posted on Twitter, McConnell wrote, “To protect the American people from a near-term Democrat-created crisis, we will also allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December.” 

Suspension allows the government to float new debt for a certain period of time instead of capping it at a certain dollar figure. After suspensions expire, the new ceiling sets at whatever level the outstanding debt has grown to by that date.

Letter to president

The statement comes after Republican leader McConnell made it clear in a letter addressed to the President that no member of his caucus would support efforts to raise the ceiling and argued that the responsibility rests with Democrats, who control Congress and the White House.

Incidentally, on Monday, President Joe Biden blamed Republicans and slammed the GOP for blocking efforts to raise or suspend the U.S. debt ceiling and avert a first-ever default on the national debt. He called the GOP hypocritical for adding nearly $8 trillion to the U.S. debt during the Trump administration and now refusing to pay for it.

“So let’s be clear: Not only are Republicans refusing to do their job, they’re threatening to use the power—their power to prevent us from doing our job: saving the economy from a catastrophic event. I think, quite frankly, it’s hypocritical, dangerous, and disgraceful.” President Biden declared.

Ideally, the Democrats can pass any bill related to the budget through reconciliation as they have 50 votes, plus the Vice President’s vote as well. On being questioned as to why wasn’t the government using reconciliation, President Biden said, “There is a process” that “would require literally up to hundreds of votes.” 

“It’s unlimited number of votes having nothing directly to do with the debt limit; it could be everything from Ethiopia to anything else that has nothing to do with the debt limit. And it’s fraught with all kinds of potential danger for a miscalculation, and it would have to happen twice,” he elaborated.

Recession threat

Meanwhile, the Treasury Department is currently paying down U.S. receipts using emergency extraordinary measures allowing the department to conserve cash and drawdown certain accounts without issuing new bonds.

On Tuesday, Treasury Secretary Janet Yellen said that the economy would fall into a recession if Congress fails to raise the debt ceiling before a default on the U.S. debt.

The Treasury Secretary told CNBC, “I do regard Oct. 18 as a deadline. It would be catastrophic to not pay the government’s bills, for us to be in a position where we lacked the resources to pay the government’s bills.”

Weighing consequences

Defaulting on its debt payments could downgrade Washington’s credit rating leading to higher interest rates. This will directly impact small business owners who are seeking loans from private lenders. Even the more accessible Small Business Administration (SBA)-guaranteed loans, which are reflective of the market conditions, could become more expensive. 

The government would also immediately need to stop more than 40% of expected payments, including Social Security to nearly 50 million older adults, and other household incomes, in case it defaults on its payments.

It would also result in delayed payment to members of the U.S. armed services. Earlier during the day, Defense Secretary Lloyd Austin, warned that national security could be threatened and troops could go unpaid if Congress fails to raise the U.S. debt limit before the nation defaults.

Some countries could hold fewer Treasury bonds and weaken demand for the dollar, in case no action is taken. CNBC reported that this could give China an upper hand in its bid to replace the greenback as the globe’s preferred currency.