President Joe Biden. Photo: Saul Loeb/AFP
The United States will not default on public debt, but the Biden administration may have to take unilateral measures to avoid a crisis, says Representative Ro Khannaa California Democrat.
“The question is whether this will lead to unilateral action by the executive,” Khanna said during a meeting with Bloomberg News reporters on Monday.
“I hope not,” added Khanna, who emphasized that Republicans were responsible for a large part of the rise in US debt over the past several decades. “I think we’re going to have a tough time, it’s not good for the political system, but at the end of the day, I don’t think the United States will default.”
Options available to President Joe Biden, according to Khanna, include sustaining the legal thesis that already approved congressional appropriations must be paid regardless of the debt limit; raising the interest rate on US Treasuries, an accounting strategy that would artificially lower the face value of US assets but risk damaging market confidence for a long time to come; or issue a $1 trillion coin.
Treasury Secretary Janet Yellen rejected the currency idea, raising questions about the Fed’s acceptance of the measure.
Members of the ultraconservative Freedom Caucus and other Republicans have demanded sweeping cuts in government spending, including Social Security and Medicare, in exchange for raising the debt ceiling this year.
Former President Donald Trump has spoken out against cuts to Medicare and Social Security, but other possible cuts, such as military spending, would not be to the liking of the Republican base.
While Congress has never allowed the US to default, the outlook for a short-term solution looks bleak at the moment. Moderate Republicans, at least for now, appear to support House Speaker Kevin McCarthy and are pushing for a negotiated solution, but Republican lawmakers differ on what that might look like.
Khanna would like to strategically cut the defense budget and tax the ultra-rich — including billionaires in Silicon Valley, which is in his constituency.
“Budget deficits matter,” he said. “They matter because they raise interest rates for the federal government. Ultimately, they matter when they cause inflation or crowd out private investment.”
However, the last president to run a budget surplus was Bill Clinton, Khanna said. He talked about the tax cuts that mostly benefited the wealthy and the costly wars in Iraq and Afghanistan during George W. Bush’s administration — which ran a $3.3 trillion deficit over his two terms; and the sweeping tax cuts under the Trump Administration, which saw a $6.6 trillion deficit after four years, in part caused by spending to combat the coronavirus crisis.
He didn’t mention Barack Obama, who brought in a $6.8 trillion deficit in his eight years in the White House.
“We’re looking at ways to pay off the debt largely caused by the Republicans and they’re saying, ‘We don’t want to pay off the debt we’ve incurred,’” Khanna said. “I say don’t negotiate whether or not we pay our debts. Of course we paid our debts.”
Translated and adapted from Bloomberg