How the United States had two financial crises for the price of one
A major crisis may have been avoided, but the short-term gain will come at a much greater cost in the long term.
Congress recently narrowly avoided another government shutdown after contentious back and forth between Democrats and Republicans and an initial failure to pass a federal funding bill. The potential closure would have affected key government services such as some health care programs, food stamps and national parks.
Preventing the shutdown hours before the end may seem like a political victory, but of course no one wins.
Yes, vital services have been given the lifeline to continue, but at a high cost. The measures ensure they will have enough funds to hold on until December 3, when another spending measure must be guaranteed or a government shutdown will occur.
The main issues and conflicts that led to the partisan divide in the first place are far from resolved. Instead of meeting the deadline with a resolution and a newly engaged compromise, policymakers hastily made short-term deals. They favored speed over quality and ignored compromises.
No one needs to remember that our nation is facing one of the worst public health crises of our time with Covid-19 reaching the recent milestone of 700,000 deaths. Nor has likely anyone forgotten the need for vital government services, many of which would have been affected by a shutdown. While these fiscal issues can be avoided for now, the longer-term impact persists, both in terms of financial and political repercussions.
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Treasury Secretary Janet Yellen recently warned of the implications of not raising the debt ceiling, citing the potential for “widespread economic catastrophe”. Even narrowly avoiding government shutdown, the country potentially faces debt default as the national debt limit approaches.
The United States generally spends more than it receives, and this tradition requires foreign loans to make up the difference. A default would shake the confidence of creditors and could lead to a range of significant political consequences, ranging from future financial security to diplomacy with current and former allies.
The quick fix to avoid shutting down the government is unlikely to impress US creditors or offer much promise for dealing with the arguably larger financial crisis within the debt ceiling.
It’s easy to see how he got there. Debt accumulates when debits outweigh credits. The necessary expansion of the role of government, especially in the last 19 months of Covid, has only increased costs, estimated by the Congressional Budget Office at more than $ 2.4 trillion.
Yet identifying who is responsible becomes a much bigger challenge. Some Democrats argue that both sides have proposed policies that have led to this point, while many Republicans have repeatedly stated that they will not pass a measure that supports policies they do not support. These include certain elements of the more liberal social agenda negotiated within the Democratic Party.
Recent polls indicate that Americans generally agree with Republicans and blame Democrats, as the party has enjoyed unified power in both houses of Congress and in the White House since the last election.
With the congressional midterm elections looming next year, this is a political hot potato that no party or politician wants to hold. And after seeing how leaders struggled to cope with the government shutdown, the debt ceiling turns out to be a much bigger political challenge.
Granted, the government has closed 10 times in the past four decades, but the circumstances have never been so dire and simultaneously preventable.
Covid cases and deaths are slowly starting to decline nationwide but the pandemic and its devastating effects are far from over. Although government at all levels has been involved in the economic recovery and public health measures, the federal government has borne the bulk of this responsibility, primarily in the context of the US bailout. This plan allocated $ 1,000 billion in tax credits and programs, $ 350 billion in emergency management funding and $ 10 billion in homeowner assistance.
The price is high ; the loss of human life is much greater.
Without congressional compromise to fund government agencies and avoid defaulting on credits by extending the national debt ceiling, the nation will face a substantial financial disaster. It would be the biggest challenge for the administration since President Biden took office in January.
Biden has been relatively silent on this issue, apparently leaving it to Congress to lead the fight while he is still reeling from the Afghanistan debacle and continues to focus on vaccination efforts as a downsizing approach to Covid.
One of the challenges for Democrats is to appease more liberal interests with more moderate activity and appease all party members throughout the process. Biden initially ran against dozens of potential presidential candidates within his party, won his primary and ultimately the general election – all with the promise of compromise, moderate policies, and strong leadership.
As the nation approaches the threat of the debt ceiling at the end of the month, Americans need compromise and strong leadership more than ever.
This is the urgent season of change that every American must witness.
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