How the Midterm Elections Could Affect The Debt Ceiling as Biden Administration Heads Toward $1T Budget Deficit

*** World Rights ***Mandatory Credit: Photo by Shutterstock (13617480bg)United States President Joe Biden delivers remarks and takes questions in the State Dining Room at The White House in Washington, DC, following the results of the midterm elections,.
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The country is still waiting on election results to see if the balance of power would shift — but one of the consequences of the midterms if the Republicans win, is that the debt ceiling probably won’t be raised unless Democrats agree to some spending cuts. In turn, this would once again threaten to trigger a government shutdown.

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“Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations,” the Treasury Department said.

The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past. In turn, the federal government would have to at least temporarily default on many of its obligations, from Social Security payments and salaries for federal civilian employees and the military to veterans’ benefits and utility bills, among others, according to the Committee for a Responsible Federal Budget (CFRB).

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Last month, House Minority Leader Kevin McCarthy, asked about what governing would look like in a potential Republican majority, told PunchBowl News that they would again hold the debt limit up for policy changes.

“You can’t just continue down the path to keep spending and adding to the debt. And if people want to make a debt ceiling [for a longer period of time], just like anything else, there comes a point in time where, okay, we’ll provide you more money, but you got to change your current behavior,” he said. “We’re not just going to keep lifting your credit card limit, right? And we should seriously sit together and [figure out] where can we eliminate some waste? Where can we make the economy grow stronger?”

As for President Joe Biden, he tweeted on Nov. 5: “Republican leaders are saying that if I don’t help them cut Social Security and Medicare then guess what? They will wreak havoc on our economy and refuse to raise the debt ceiling. I’m not joking. As my grandkids would say, “Google it.”

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The federal government incurred a deficit of $83 billion in October 2022 — the first fiscal month — according to the Congressional Budget Office (CBO) estimates.

“The debt is projected to continue to climb as we head for another year of a $1 trillion deficit. And that is assuming Congress doesn’t make things even worse,” Maya MacGuineas, president of the CRFB said in a Nov. 8 press release.

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Barry Gilbert,  asset allocation strategist and Jeffrey Buchbinder, CFA, chief equity strategist at LPL Financial, said that one of the consequences of the midterms — and in turn, a factot that could move markets — is that  “the path to raising the debt ceiling may become more difficult, and markets have usually reacted negatively when it starts to look possible that the U.S. will default on its debt.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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