President Barack Obama has invited congressional Republicans to the White House for negotiations Wednesday following the defeat of a bill to raise the U.S. debt ceiling. While the House will likely raise the government’s debt ceiling sooner or later, it may not come without deep spending cuts and budget revisions.
Strangely, but not surprisingly, Tuesday’s bill seeking a raise in the debt limit by $2.4 trillion was sponsored by the Republicans who have a majority in the House. The bill’s chief sponsor, Ways and Means Chairman Dave Camp, was quoted by the media as saying, “This vote, a vote based on legislation I have introduced, will and must fail.” It failed on a vote of 318 to 97 – far below the two-thirds majority required for passage.
The vote was held to tell Obama that the House will not increase the debt limit unconditionally. Representative Chris Van Hollen of Maryland, senior Democrat on the Budget Committee, termed the move as a “political stunt,” The New York Times reported. Other Congressional Democrats warned this could rattle financial markets at home and abroad.
Soon after the government hit the $14.29 trillion debt ceiling on May 16, Politico suggested that Congressional Republicans were planning to use the debt limit as a “negotiating chip to extract deeper spending cuts and long-term fiscal reforms” from the White House.
While Republicans want the government to slash its spending before seeking to raise the borrowing limit, Democrats intend to hike tax, especially for wealthier Americans, to shield funding entitlements such as Medicare or Social Security. But the timing of the crisis is in Republicans’ favor, as the strain on the U.S. Treasury – due to the war against terror and the depression – reached a saturation point during Obama’s presidency.
The face-off may continue well into the summer, thinks New York Times reporter Jackie Calmes. Consequences will be for both parties and, potentially, for the economy and Wall Street, where the bond market in particular is watching the standoff closely, she said in an article Tuesday.
But Calmes played down the possibility of a major crisis coming out of it. “Yet for all the talk of crisis should Congress fail to raise the debt ceiling by Aug. 2, when the Treasury Department says it will run out of room to meet all the government’s obligations without further borrowing, the financial markets are likely to yawn at yesterday’s proceedings.”
However, some analysts are worried. JPMorgan Chase head Jamie Dimon fears a delay in raising the debt limit could do a significant harm to the U.S. economy leading to uncertainty in the bond market and hike interest rates, according to The Wall Street Journal. It could raise capital costs for struggling U.S. businesses and cash-strapped homebuyers and rising interest rates might divert future taxpayer money away from much-needed capital investments such as infrastructure, education and healthcare, according to Jonathan Masters at Council on Foreign Relations.
Earlier this year, a group of Christian leaders echoed what House Speaker John Boehner has said – that the national debt is a moral threat to the U.S. and that fixing it is a moral priority.
The group, which includes leaders such as Fuller Theological Seminary President Richard Mouw, Sojourners' Jim Wallis and Northland Church pastor the Rev. Joel Hunter, offered a Christian proposal to take on the federal debt while being mindful of the poor. They called for cuts to wasteful corporate and agricultural subsidies, the defense budget and salary increases to federal employees. They also called for reforms to social security and for lawmakers to control health care-related expenses rather than just trimming government budgets.