with a 14 percent cut in overall federal spending along with a defunding of the Inflation Reduction Act, the imposition of work requirements on various social programs, and policies promoting fossil-fuel production., McCarthy told his caucus’s hard-liners that “he would personally oppose and fight against any debt ceiling agreement that doesn’t includein the House bill.
Therefore, the Biden administration must be prepared to take unilateral action to avert a debt default, which would haveThe White House has several options at its disposal. For one thing, Biden could simplyunder the 14th Amendment, which stipulates that “the validity of the public debt of the United States … shall not be questioned.” Some legal scholars therefore believe that it is not constitutional for Congress to prevent the federal government from paying its debts.
, Biden challenging the constitutionality of the debt limit would lead to a financial-market sell-off and slower growth. But assuming the Supreme Court ultimately upheld the action, the economy would quickly rebound. It is possible that the Court would instead force a default. But engineering a needless financial crisis is not one of the conservative legal movement’s animating ambitions.
There is a clear downside to the consol-bonds solution. In order to attract buyers for bonds that never mature, the Treasury will need to offer a high interest rate, increasing the cost of government financing. But this would still eliminate uncertainty about the government’s capacity to repay previously issued, normal bonds. So the impact on the cost of credit in the broader economy should not be very significant.
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