America Set to Hit Its Borrowing Limit Today, Raising Economic Fears

Gregory Daco, the chief economist at EY Parthenon, estimated this week that without an increase or suspension in the debt ceiling by the time extraordinary measures were exhausted, economic output in the United States could be cut by 5 percent. Such a contraction would deal a major blow to an economy that is projected to grow modestly this year.

“Treasury would need to balance the federal budget by ensuring that government outlays are equal to government revenues,” Mr. Daco said, predicting that such a scenario would lead to “a self-inflicted recession” and risk “severe financial market dislocations.”

Ms. Yellen has dismissed ideas for lifting the borrowing cap unilaterally, such as minting a $1 trillion coin, as fanciful.

Some veterans of debt-limit fights anticipate that as the X-date approaches, a sufficient number of Republicans will back away from the brink of a default.

“While no one really knows what would happen if you breach the debt limit, not many people would speculate that good stuff happens after that,” said Christopher Campbell, who served as assistant Treasury secretary for financial institutions from 2017 to 2018. “It’s a cascade of how bad it gets.”

Mr. Campbell, a former staff director for Senate Finance Committee Republicans, added, “At the end of the day, I think that cooler heads will have to prevail.”

White House officials, though, have privately begun exploring alternative routes to raising the limit, including maneuvers — which could take months — to force a vote on a debt-ceiling increase with predominantly Democratic support. They have not expressed confidence that Republicans will bend in negotiations, though they have repeatedly said they expect Congress to lift the limit.

Ms. Jean-Pierre reiterated on Wednesday that Mr. Biden would not negotiate over a debt-limit increase. Asked if she believed Republicans saw it as their responsibility to raise the limit and avoid a default, she replied, “They should.”

Sumber: www.nytimes.com

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