Republicans and Democrats in Standoff... "Debt Ceiling is a Ticking Time Bomb That Won't Explode"

The U.S. Republican and Democratic parties are pushing the federal government debt ceiling issue to an extreme situation. Although the Treasury Department is using emergency measures to suppress the problem of exceeding the limit, difficulties continue as Congress and the government politicize the issue. As the 'X-day,' the point when the U.S. Treasury's cash reserves are depleted, is moving up to early June earlier than initially expected, the market is taking a wait-and-see stance, calling it a 'familiar adverse factor.'

A bill linking the Republican-proposed debt ceiling increase with government spending cuts narrowly passed the U.S. House of Representatives on the 26th (local time). According to major foreign media reports, the bill proposed by the Republicans was approved in the House with 217 votes in favor and 215 against. However, the bill is unlikely to pass the Senate, where the Democrats hold the majority, and with President Joe Biden having announced his intention to veto the bill the day before, the confrontation over raising the debt ceiling is expected to intensify.

The bill passed by the House on that day includes raising the debt ceiling by $1.5 trillion or extending it until March 31 next year, on the condition that federal government spending is reduced to 2022 levels and budget increases are limited to 1% annually.

House Speaker Kevin McCarthy urged President Joe Biden to come to the negotiating table while demanding that the Senate approve this bill or prepare its own legislation. However, President Biden, at a press conference during the Korea-U.S. summit earlier that day, responded to a question about whether he would meet with Speaker McCarthy regarding the debt ceiling increase by saying, "I am willing to meet with Speaker McCarthy, but not about extending the debt ceiling," emphasizing, "That is non-negotiable."

Senate Majority Leader Chuck Schumer also criticized the bill passed in the House as "dead on arrival" in the Senate, saying it would only dangerously bring the U.S. closer to a debt default that would shake global markets and the economy.

The Republicans have demanded government spending cuts as a condition for raising the debt ceiling, but the White House and Democrats have countered that the debt ceiling should be raised unconditionally and government spending adjustments should be discussed separately.

The debt ceiling is set by Congress to limit the amount of money the U.S. government can borrow, currently standing at $31.381 trillion. Treasury Secretary Janet Yellen stated in January that the limit for avoiding default without raising the debt ceiling is early June, and some predict that cash reserves will run out in the third or fourth quarter of this year.

Kevin McCarthy, Speaker of the U.S. House of Representatives.
Photo by UPI Yonhap News

The market and some experts caution against excessive concern, saying the debt ceiling is like a 'time bomb that does not explode.' Former U.S. Treasury Secretary Lawrence Summers said the probability of the U.S. government facing a technical default due to debt ceiling legislation in the coming months is only 2-3%, and even if a default occurs, it will be resolved quickly.

At the Morningstar Conference held in Chicago that day, former Secretary Summers said, "The probability that bondholders will not receive payments for a certain period due to a default (assuming no large-scale war occurs) is certainly less than 2% over the next 10 years."

The New York Times (NYT) also reported, "The default crisis is a familiar adverse factor that the market has already experienced, and the partisan battles over taxes or government spending are ultimately expected to be resolved at the last minute."

This content was produced with the assistance of AI translation services.