Washington Joe Biden is not only fighting for majorities these days for massive investments that are supposed to define his presidency. Before the weekend, it could be decided whether his Democrats will get two billion dollar packages for infrastructure and social programs through Congress – or whether Biden will end up empty-handed.
At the same time, the US Democrats must avert a government standstill, a so-called shutdown, and prevent national bankruptcy. Because the US authorities will run out of money this Friday if no budget is approved by then. In addition, the US is threatened with insolvency in less than three weeks if Congress does not raise the debt ceiling.
The situation is extremely complicated: Ultra-tight majorities in Congress limit Biden’s maneuverability, and chaotic negotiations are taking place on Capitol Hill. The mood in Washington is charged, because Biden’s Democrats are divided and the Republican opposition denies almost any cooperation.
The showdown in Congress comes at an inopportune time for Biden. Since the disastrous withdrawal from Afghanistan, his polls have been on a downward trend, the pandemic is scratching the economic upswing, tens of thousands of refugees strand on the southern border with Mexico every day. The struggle for trillions now forces Biden again into the role of crisis manager. A trip to Chicago, where he wanted to advertise the Covid vaccination program, he canceled at short notice.
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The most pressing time is to avert a shutdown. If Congress can’t agree on funding for the budget by Friday, US government agencies will have to send thousands of employees home. The last shutdown under Donald Trump’s presidency lasted 35 days. For the Democrats, a government standstill would be a fatal signal. Because Biden has positioned himself as an alternative of reason, unlike Trump, he wants to ensure stability.
Now, of all times, when many ministries are distributing funds for vaccinations and natural disasters, a shutdown would be felt across the country. But observers expect the Democrats, who hold thin majorities in both chambers of Congress, to pass a provisional budget at the last minute. “The USA has survived many shutdowns without long-term consequences, and we believe that this is also the case now,” analyzed the BBH Global Currency Strategy investor office.
Many Conservative Senators like John Barrasso from Wyoming (center) reject the US President’s budget plans.
(Photo: Polaris / laif)
Thursday is about everything
Politically more delicate is the struggle over Biden’s gigantic reforms, which together are expected to cost more than four trillion dollars. Part of it is an infrastructure package worth around 1.2 trillion, which was created in rare collaboration with the Republicans. In August, the US Senate, the most powerful chamber in Congress, had already passed the reform.
But since then she has been stuck in the second chamber, the House of Representatives. Guilt is a power struggle within the Democrats. The left-wing camp only wants to guarantee approval if Congress passes a budget package worth 3.5 trillion at the same time – single-handedly and without Republican votes if necessary. However, this mega-package is controversial even among moderate Democrats, who reject the associated tax increases and high costs.
The Vice President supports Joe Biden’s endeavors.
(Photo: imago images / UPI Photo)
The risky tandem vote had until recently been supported by the White House: All or nothing, seemed Biden’s motto. But now there are signs of a U-turn. The Democratic leader in the House of Representatives, Nancy Pelosi, has been pressing since Tuesday that the infrastructure package must be passed in any case, initially regardless of the 3.5 trillion reform. She wants to put a vote on Thursday.
This change in strategy reflects the pressure the Democrats are under. There seems to be great fear of not being able to launch a major project at all before the important congressional elections next year. Neither Barack Obama nor Trump succeeded in infrastructure reform; for Biden it would be a great domestic political victory.
All eyes will therefore be on the House of Representatives on Thursday. The Democrats in the Chamber cannot afford more than three dissenters. But whether the majority will stand or Biden will be embarrassed is uncertain. Pelosi kept the option open of having to postpone the vote if necessary. “We plan from hour to hour,” she said on Wednesday evening. The left wing around MPs Pramila Jayapal and Alexandria Ocasio-Cortez does not want to turn around so far. “Our position is clear, it remains unchanged,” tweeted Jayapal.
She got support from the left Senator Bernie Sanders, who designed the social reforms. “There is no infrastructure package without a $ 3.5 trillion package,” he wrote. Roads and bridges are important, “but families and climate protection are more important.” If the infrastructure package fails, Biden has no success at all for the time being – and the struggle for trillions starts all over again.
“A potentially catastrophic event”
Above all, there is the risk of national bankruptcy, the dimensions of which would fade the struggle for trillion packages and panic the financial markets. The US has never been insolvent before. The country’s largest lender, JPMorgan Chase & Co, is already drafting scenarios for a possible loan default. “We’re talking about a potentially catastrophic event,” said CEO Jamie Dimon. “We should never get this close to the edge.”
Experts warn of a stock market crash, rising interest rates on mortgages and loans and a wave of layoffs if Congress does not raise the debt ceiling. US Treasury Secretary Janet Yellen told Congress that the deadline for the US to slide into bankruptcy was October 18. “The confidence and creditworthiness of the United States would be damaged, our country would likely face a financial crisis and a recession,” she said on the banking committee.
The US, like many developed countries, has a budget deficit and has to borrow huge sums of money to pay its bills. Congress sets the limit for the Treasury Department’s borrowing annually. It is currently at $ 28.4 trillion. For comparison: the US gross domestic product was US $ 20.93 trillion last year.
This year the wrestling over the debt ceiling is particularly charged. The Republicans also refuse to approve because they consider Biden’s planned billion dollar packages to be dangerously expensive. However, under Trump they themselves helped to drive up national debt, including through the tax reform of 2017. The Republicans raised the debt ceiling a total of three times during Trump’s time – always with the support of the Democrats.
“Exceeding the debt limit can have serious consequences,” warns BBH Global Currency Strategy. “The last thing the markets need is an extra dose of uncertainty.” The Investor Bureau expects Congress to prevent the bankruptcy at the last minute. “Until then, the markets will likely remain volatile.”
The only option left for the Democrats is to single-handedly raise the debt ceiling. However, it is unclear whether they can process this in time before October 18.
The President urges unity and quick solutions. When he had his Covid booster vaccination injected into his upper arm on Monday, he warned: “We have to raise the debt ceiling, prevent a shutdown and pass both legislative packages. If we do that, the country will be in excellent shape. ”He left open what happens if all of this fails.
More: Financial policy must free itself from the debt trap: Germany, Europe and the USA are grappling with debt ceilings. What is missing are positive financial policy goals for the future.