Lawmakers warned of looming debt default if Congress cannot agree to raise the debt ceiling

WASHINGTON — A Senate subcommittee connected the Banking, Housing and Urban Affairs Committee heard from witnesses Tuesday astir the consequences of not raising the $31.4 trillion indebtedness bounds amid a stalemate betwixt Republican lawmakers and the White House implicit a measure that would let the national authorities to proceed to wage its indebtedness obligations.

A caller report released by fiscal services institution Moody's Analytics, which outlines alternatives to a debt-limit bill, was a cardinal diagnostic of the proceeding of the Subcommittee connected Economic Policy. Mark Zandi, main economist astatine Moody's, said an impending default would "be a catastrophic stroke to the already fragile economy."

"Global fiscal markets and the system would beryllium upended, and adjacent if resolved quickly, Americans would apt wage for this default for generations, arsenic planetary investors would rightly judge that the national government's finances person been politicized and that a clip whitethorn travel erstwhile they would not beryllium paid what they are owed erstwhile owed it," Zandi said successful opening remarks released earlier the hearing.

The Moody's expert besides said that a Republican fund connection to see ample spending cuts with the extremity of decreasing fiscal spending to 2022 levels implicit 10 years would punctual a recession adjacent twelvemonth and effect successful arsenic overmuch arsenic 2.6 cardinal jobs lost.

"Since Republicans person stated determination volition beryllium nary taxation increases, and Social Security and Medicare benefits volition stay untouched, to execute a balanced fund would apt mean each but the elimination of nondefense discretionary spending and the Medicaid program," helium said. "Given the melodramatic simplification successful authorities spending successful this script and the already fragile economy, the system suffers a recession successful 2024. The economy's semipermanent maturation prospects are besides meaningfully diminished fixed the terrible fiscal restraint."

Some Republican members of Congress, led by House Speaker Kevin McCarthy, R-Calif., are holding retired connected a indebtedness ceiling statement for negotiations with the White House implicit fund priorities, but the U.S. Treasury Department volition exhaust all temporary measures to hold default betwixt July and September unless lawmakers rise the indebtedness ceiling, the Congressional Budget Office has warned.

As clip runs out, a increasing fig of lawmakers are weighing the Treasury's quality to debar a debt-limit breach by prioritizing payments to Treasury bondholders, according to the report. Analysts called the solution "badly misguided."

"It would beryllium challenged successful the courts," Zandi said of the workaround. "Bond investors, unsure of however this ineligible uncertainty would beryllium resolved would request a overmuch higher involvement complaint successful compensation. Moreover, politically, it seems unimaginable that enslaved investors, that includes galore overseas investors, would get their wealth up of American seniors, the military, oregon adjacent the national government's electrical measure for long."

Douglas Holtz-Eakin, president of the American Action Forum, a right-leaning fiscal argumentation organization, told the senators that the U.S. volition efficaciously manus economical powerfulness to China if it defaults connected its indebtedness and endangers its planetary creditworthiness.

"The conception that we could springiness up the creditworthiness of the Treasurys and person the satellite basal by and not spell find different reserve currency is missing the large point," Holtz-Eakin said. "They would, and past we'd beryllium handing that accidental to China. And astatine this juncture, there's nary crushed to bash that."

In his opening remarks, Holtz-Eakin besides said that skirting default would person "serious and adverse economical effects."

"It would pb to reductions successful banal prices, reducing the wealthiness of galore taxpayers. It would trim economical confidence, which successful crook could trim user spending. It would summation involvement rates, leaving taxpayers connected the hook for billions of dollars of involvement payments. And it would summation the likelihood of an accidental default," helium said.

Sen. Elizabeth Warren, seat of the economical argumentation subcommittee, compared the Republican pushback connected the debt-limit determination to refusing to wage a recognition paper bill.

"The House Republicans person decided to usage the indebtedness ceiling to clasp our authorities and our system hostage, the Massachusetts Democratic legislator said during the hearing.

"They are demanding monolithic cuts successful authorities spending, investments successful the American economy, investments successful American workers, oregon they won't let the United States to wage the debts that it has already incurred, you know, a small similar moving up a measure connected the recognition paper and past declaring that your caller fund program is: We're not going to wage the measure connected the recognition card."

"House Republicans don't look acrophobic astir the upcoming indebtedness bounds deadline," Warren said successful her opening remarks. "Instead, they look downright thrilled to person an accidental to usage it arsenic leverage to request taxation cuts for billionaires and elephantine corporations."