By Trevor Hunnicutt
WASHINGTON (Reuters) – The White House is refusing to negotiate with hardline Republicans on raising the debt ceiling because it believes enough of them will eventually back down on their demands, as a growing chorus of investors, business groups and moderate conservatives warn of the dangers at edges against a standard.
The high-stakes stalemate is widely expected to last for months and could come down to the last minute as each side tests the other ahead of June, when the US government could be forced to default on its debt.
As the White House urges House Republicans to raise the debt ceiling to avoid economic chaos, it plans to highlight their threats to spending programs and the global economy, President Joe Biden’s aides and allies say.
“Leading congressional Republicans themselves have previously admitted that default would trigger an economic collapse, kill millions of jobs and destroy 401,000 plans,” White House spokesman Andrew Bates told Reuters. “But die-hard MAGA Republicans are now advocating this outcome.”
The U.S. government hit its borrowing limit of $31.4 trillion on Thursday, a figure that reflects money the government has already spent. House Republicans want cuts to government programs
before they will approve a higher ceiling; a similar demand triggered a credit rating downgrade in 2011 and chaos in financial markets.
But the White House’s strategy has its risks, given the unpredictable nature of hardline Republicans in the House, some Democrats say.
“Certainly there are parts of the House GOP caucus, and in the broader conservative atmosphere, that are quite explicitly arguing that it wouldn’t be the worst thing” not to come to an agreement with the Democrats, Tobin Marcus said. who served as an economic adviser to then-Vice President Biden during a 2011 debt ceiling battle.
Republicans call the idea a default alarmist.
“We’re not going to default on the debt. We have the ability to manage servicing and pay our interest. But we also shouldn’t blindly raise the debt ceiling,” Representative Chip Roy, a leading conservative, told Reuters.
2024 CAMPAIGN FOCUS ON EXTREMISM
The game of chicken comes as the White House prepares for Biden’s expected re-election campaign. Biden, 80, is expected to announce in February that he plans to run for a second term, and aides plan to focus on the rock-solid labor market, falling costs and threats from “extreme” Republicans.
The fight over the debt ceiling could help Biden here, some strategists say.
Some aides believe he has plenty to gain by being seen as “the adult in the room” facing an opposition willing to tank the economy. Democrats plan to air this theme in the 2024 election, even if a deal on the debt ceiling is quickly reached.
The White House is also flagging Republicans’ vague plans to prioritize some federal spending over others as the debt ceiling nears, and suggestions by others that Social Security spending be targeted.
Biden on Monday dismissed some lawmakers as “fiscally demented.”
Meanwhile, the economic picture remains mixed.
Biden and top US officials have repeatedly said they believe the economy’s growth can be slowed to more sustainable levels without putting people out of work. The so-called “soft landing” is what the Federal Reserve is also aiming for, although they have admitted the goal may be elusive.
Retail sales fell by the most in a year in December, suggesting growth is ebbing in the consumption-driven US economy. Factory output, a barometer of the president’s goal to revive US manufacturing, also registered its biggest drop in nearly two years last month.
Biden did not mention those numbers when they were released, but praised another economic report also released Wednesday on producer prices that showed progress in taming inflation, the administration’s top economic concern.
“We have the most vibrant economy in the world right now — in the world,” Biden said in a policy speech Monday. “We are doing better than any other major nation in the world today.”
Trillions in spending approved in the first two years of Biden’s presidency are expected to be spread over the coming years, which the White House says will help American growth and stave off recession.
Failure to raise the debt ceiling could have the opposite effect.
“From both an economic and financial perspective, failure to raise the debt ceiling would be an unmitigated disaster,” said David Kelly, chief global strategist for JPMorgan Chase & Co funds.
“While a failure to raise the debt ceiling is the most immediate fiscal threat to the economy and markets in 2023, damage could also be done either by continuing to ignore deficits altogether or by inflicting very strong fiscal pressures on an economy that is now thoroughly wired austerity. on drugs for monetary and fiscal stimulus.”
(Reporting by Trevor Hunnicutt; Editing by Heather Timmons and Alistair Bell)