After all-night negotiations, Republicans and Democrats in Congress have reportedly reached a temporary agreement to raise the debt ceiling. Republicans had offered a proposal to extend the debt limit into December, but it comes with a caveat.
Senate Minority Leader Mitch McConnell's offer, at least in the short term, will allow Democrats to raise the debt limit so that America can keep borrowing more money to pay its bills, including its debts to other countries.
In a statement released on Twitter, McConnell said his plan allows "Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December."
My new statement on the Democrats’ self-created debt limit crisis: pic.twitter.com/XwuqyS9oZ0
— Leader McConnell (@LeaderMcConnell) October 6, 2021
McConnell had given the Democrats a three-month warning that they'd need to raise the debt ceiling on their own through the process known as reconciliation - but they never did, and now time has run out.
"The Democratic leaders wanted solutions. They wanted to turn their failure into everybody else's crisis," McConnell said before the new stopgap agreement.
Senate Minority Leader Mitch McConnell looks on as Senate Majority Leader Chuck Schumer speaks (AP Photo/Andrew Harnik)
Now, with only 11 days to go before the country hits the borrowing ceiling set by Congress, the parties are finally finalizing an agreement to prevent the government from going into default for at least a few more months.
The White House wants a long-term suspension of the debt limit. Press Secretary Jen Psaki said, "If we're looking at the best options, why kick the can down the road a couple of more weeks? Why create an additional layer of uncertainty? Why not just get it done now? That's what we're continuing to press for, and that's our first choice."
A study by Moody's agrees that a debt default would be a "cataclysmic economic scenario" that would rock global markets, cost up to six million jobs and wipe out up to $15 trillion in wealth from American households.
Every area of federal spending would be affected by a default – $20 billion in Social Security payments to seniors, paychecks to our military would stop along with payments to suppliers, and other government checks and spending would stop. Retirement funds could also take a hit.
And the impact would spread throughout the economy. People who don't get government checks could have trouble paying their bills, which would hurt local utilities and businesses, leading to layoffs.
JP Morgan CEO Jamie Dimon said, "The effects would be cascading. So day one would be bad, but the cascading effects in the ensuing weeks could go anywhere from a recession to a complete catastrophe for the global economy."
The government's credit rating could be hurt, and interest rates would rise, making mortgages and other loans more expensive.
U.S. Treasury Secretary Janet Yellen said, "Our fragile recovery would be thrown into reverse. We would likely experience a recession. Millions of jobs would be lost and the pain would endure well past the resolution of the crisis."
Many analysts argue the debt ceiling debate is a symptom of a deeper problem.
Cedarville University Prof. of Economics Jeff Hammond said, "The reality is, the U.S. government continues to make more promises than it has the ability to pay. That's what leads us to this problem. Senator Manchin mentioned just last week. We can't even pay for existing social programs, and we're going to add a whole bunch more."
For now, Senate leaders McConnell and Chuck Schumer appear to be on their way toward finalizing a deal for a short-term extension, but in two months, both parties could be right back where they are now, debating how to deal with Washington's exploding $28.8 trillion national debt.