Lose-Lose: Extremist MAGA Republicans Will Damage The Economy With A Default On The Debt, Or Their Extremist MAGA Budget

Extremist MAGA Republicans are offering the country a lose-lose proposition. They have taken the county hostage (again) over the federal debt ceiling, and are threatening to kill the hostage if Democrats do not agree to their extortion demands. “Give us what we demand, or we will default on the debt!”

House Republicans cleared a key procedural hurdle this afternoon as the chamber voted along party lines to move forward on the Limit, Save, Grow Act, a $4.8 trillion spending-cut package that also lifts the debt limit. The vote was 219-210,” Punchbowl News reports. A final vote on the extremist MAGA extortion demands is scheduled for this evening. McCarthy can withstand no more than four defections assuming all members vote and Democrats, as expected, stay united in opposition.

A default on the federal debt, in violation of the Constitutional requirement to maintain the full faith and credit of U.S. debt, would be catastrophic for the economy. Debt default would be ‘catastrophic’ event that could kill millions of American jobs, Moody’s warns:

A breach of the US debt ceiling risks sparking a 2008-style economic catastrophe that wipes out millions of jobs and sets America back for generations, Moody’s Analytics warned on Tuesday.

In a new report ahead of Congressional testimony, Moody’s chief economist Mark Zandi described the standoff over raising the debt limit as an “immediate threat” to the nation’s economy that could negatively impact virtually all Americans.

“A default would be a catastrophic blow to the already fragile economy,” Zandi said in prepared remarks to be delivered during a Senate subcommittee hearing on Tuesday. “The timing couldn’t be worse for the economy, as even before the specter of a debt limit breach many CEOs and economists believe a recession is likely this year.”

In new economic simulations, Moody’s estimates that even a brief breach of the debt limit would kill nearly a million jobs and cause the economy to sink into a “mild” recession. The unemployment rate would jump from the half-century low of 3.4% at the start of this year to almost 5%. Markets would get rocked, wiping out a chunk of the retirement savings and nest eggs of many Americans.

“A TARP moment seems likely,” Zandi wrote in the report, referring to the late-2008 event when Congress initially failed to pass a bailout program but then quickly reversed course after markets took a nosedive. “A similar crisis, characterized by spiking interest rates and plunging equity prices, would be ignited.”

[T]he warning comes after Fitch Ratings told CNN on Monday that the US credit rating could get downgraded even if a default is avoided because repeated debt ceiling standoffs will raise debt about the US dollar and Treasuries.

Moody’s warns that “dramatic” cuts to government spending in this scenario would spark a 2024 recession that costs the economy 2.6 million jobs and lifts the unemployment rate near 6%.

“It is fair to say that lower-income households suffer substantially more financially, as they rely heavily on the government benefits lost in the budget cuts,” Zandi wrote.

But these aren’t even the worst-case scenarios.

A prolonged breach of the debt ceiling would spark a “cataclysmic” blow to the economy similar to that experienced during the global financial crisis, according to Moody’s.

The report projects the economy would lose more than 7 million jobs, the unemployment rate would more than double to above 8% and $10 trillion in household wealth would vanish as stocks plunge by more than 20%.

Given the enormous stakes, Moody’s Analytics urged lawmakers to avoid playing chicken with US debt.

“Lawmakers should put an end to the wrangling over the debt limit and increase it with no strings attached so future generations can enjoy the same benefits,” Zandi said in his prepared remarks.

It’s growing more likely that the U.S. could default on its debt as soon as early June if Congress doesn’t act, according to a trio of new analyses, CNN reports.

The nonprofit arm of House Majority PAC is launching a new television ad campaign tying House Republicans to the threat of default, furthering Democratic attacks on Kevin McCarthy’s debt ceiling proposal and the House GOP’s approach towards budget negotiations, Politico reports.

Surrendering to the extortion demands of extremist MAGA Republicans will also result in harm to the economy. A new analysis from Moody’s Analytics finds that Speaker Kevin McCarthy’s plan to cut spending and lift the debt ceiling “would meaningfully increase the likelihood” of a recession and result in 780,000 fewer jobs by the end of 2024 compared with a clean bill to lift the debt limit.

[H]ouse Speaker McCarthy unveiled the “Limit, Save, Grow Act of 2023” on April 19. House republicans hope the legislation will put political pressure on president Biden to negotiate changes in fiscal policy in exchange for an increase in the debt limit. The president continues to reject these efforts, arguing for a so-called clean debt limit increase—an increase in the debt limit without substantive changes to policy. His position is that increasing the debt limit is necessary to pay the government’s bills resulting from past fiscal policy decisions, over which there can be no negotiation. [This is correct.]

Speaker McCarthy’s proposed legislation would increase the debt limit by $1.5 trillion or until March 31, 2024, whichever comes first. [In the middle of the 2024 election primary season.] In exchange, it would cut government spending by $4.5 trillion over the next decade and implement a number of consequential changes to fiscal policy … The most significant spending cuts would come by setting fiscal 2024 discretionary spending equal to fiscal 2022 spending levels. [The return of “austerity” from a decade ago.] Annual spending growth would then be capped at 1% for the next decade. While not stipulated in the legislation, republicans would likely work to exclude discretionary spending on defense and veterans’ benefits from the cuts, putting the burden of the cuts on nondefense, non-VA disrectionarty programs. If nondefense discretionary outlays were to bear the full brunt of the proposed budget cuts, they would fall to 2% of GDp by fiscal 2033, the lowest since at least the early 1960s.

The Speaker’s debt limit legislation also works to roll back a number of president Biden’s policy initiatives. On energy policy, the [climate change denying] legislation would focus on increasing fossil fuel supplies through the enactment of House Republicans’ energy package, which aims to boost oil and gas production and mining by cutting down on the time it takes to greenlight energy projects. It would also end tax breaks for clean-energy proj ects and qualifying electric vehicles included in the Inflation Reduction Act. [MAGA Republicans are the lickspittle lackeys of the carbon monopoly.]

On student lending, the legislation would prevent a couple of key executive orders by the Biden administration, including the White House’s plan to provide up to $20,000 in student loan forgiveness for some borrowers. That hit a roadblock last year when it was met with several legal challenges, and the Supreme Court is expected to decide its fate later this year. An income-driven repayment plan rolled out by the Education Department earlier this year is also in the crosshairs.

The Speaker’s legislation also imposes restrictions on income support programs, including work requirements on Medicaid recipients who do not have children, an increase in the age limit for work rules under Supplemental Nutrition Assistance program (food assistance), and a requirement that states report on work outcomes under the Temporary Assistance for Needy Families program. It eliminates much of the additional funding provided to the IRS last year to help increase tax enforcement efforts and improve taxpayer services, and it rescinds unspent COVID-19 relief funds. And the legislation would also require con- gressional approval before major regulations could take effect.

Macroeconomic impacts

The Limit, Save, Grow Act of 2023 would cut into near-term economic growth if passed into law. Compared with a scenario that includes a clean debt limit increase and no other significant changes to fiscal policy under current law, real GDP in the year ending in the fourth quarter of 2024 would be 0.65 percentage point lower. That is, in the Clean Debt Limit scenario, real GDP is expected to grow 2.25% in the year compared with 1.6% if Speaker McCarthy’s legislation becomes law.

While the economy skirts recession in both scenarios, recession risks are uncomfortably high, with a consensus of economists and many investors and business executives expecting a downturn beginning late this year or early next. The timing of the government spending cuts in the Limit, Save, Grow Act is thus especially inopportune as it would meaningfully increase the likelihood of such a downturn. Indeed, under the legislation, GDP growth is so weak that employment declines in the first three quarter of 2024, and the unemployment rate rises by more than a percentage point to 4.6% by the fourth quarter of 2024. Compared with the Clean Debt Limit scenario, by year-end 2024, employment is 780,000 jobs lower, and the unemployment rate is 0.36 percentage point higher.

The significant government spending cuts in the Limit, Save, Grow Act are substantial headwinds to near- term economic growth. The cuts reduce nondefense outlays by $120 billion in fiscal 2024 compared with the Clean Debt Limit scenario, equal to about half a percentage point of GDP. The multipliers on this spending—the change in GDP a year after a change in spending—are estimated to be just over 1, as the programs suffering budget cuts are essential government services and tend to benefit lower-income households that quickly spend any support they receive from the government. Adding to the economic headwinds created by the legislation is the considerable uncertainty created by having to address the debt limit again a year from now. Given that 2024 is a presidential election year, that future debt limit drama may well be even more heated than the current one. This is sure to weigh on investor, business and consumer confidence and thus economic activity.

The extremist MAGA Limit, Save, Grow Act is dead on arrival in the Democratic Senate. President Biden on Tuesday threatened to veto the legislation being pushed by House Republican leaders that would condition support for raising the debt ceiling on deep spending cuts, calling it “a reckless attempt to extract extreme concessions as a condition for the United States simply paying the bills it has already incurred,” the Washington Post reports.

UPDATE: President Biden said that he was “happy to meet” with Speaker Kevin McCarthy but added that raising the debt ceiling is “not negotiable” [it is required by the full faith and credit clause of the Constitution] as House Republicans prepare to pass a bill that would pair a debt limit increase with government spending cuts, The Hill reports.

UPDATE:

McCarthy’s debt ceiling plan is theater unworthy of a high school gym.
The Economist devoted a recent cover to our economy as “a marvel to behold.” Allowing the fractious politics of an unstable House GOP caucus to tank it would be unconscionable
My column https://t.co/bQU2Z5oVqJ

— EJ Dionne (@EJDionne) April 23, 2023

Looks like House Republicans are getting ready to break another promise to America’s Veterans…less than a year after making it!! Damn Hypocrites. #ProtectVeteransHealthCare

— Jon Stewart (@jonstewart) April 26, 2023