The current impasse between President Joe Biden and the GOP-controlled House of Representatives over the debt ceiling could wind up costing taxpayers more in interest payments, even if the country does not go into default, and will certainly increase interest rates if it does, experts warn.
“I’m very concerned about the debt ceiling,” House Speaker Kevin McCarthy (R-Calif.) said on April 5, citing the rising cost of servicing the $31.4 trillion national debt and President Joe Biden’s unwillingness to enter into negotiations over raising the statutory limit while at the same considering unspecified spending cuts.
“They [Wall Street] should be concerned because I sat down with the president on February 1, and [since then] the president never wants to meet,” McCarthy said.
The debt ceiling would have been reached on Jan. 18 if not for extraordinary measures taken by the U.S. Treasury to delay the event.
Only Congress can raise the debt limit, but McCarthy has consistently said it will not do so without some agreement to curb federal spending. “We’re never going to move a bill that just raises the debt,” he said.
Biden has refused to negotiate over the issue, saying it would endanger the full faith and credit of the United States.
Though both leaders have said they will not allow the U.S. to default on its financial obligations, lack of progress in negotiations has stoked concern that a default could result.
“If the U.S. government misses so little as a single payment on its debt-service obligations, the global appetite for U.S. Treasury instruments is likely to decline substantially,” Peter C. Earle, an economist at the American Institute for Economic Research, told The Epoch Times.
“That means two things: higher yields on U.S. government bonds, which will in turn make debt payments even more expensive going forward,” Earle said.
Even approaching the debt limit would be expensive for taxpayers, according to Jack Lew, who served as President Obama’s secretary of the Treasury from 2013 to 2017.
During debt-ceiling negotiations in 2013, for example, interest rates increased by six basis points, Lew said during a forum on the debt ceiling on April 4. A basis point is 0.01 percent.
“Five basis points over 10 years costs almost $25 billion. That’s just money burned,” Lew said.
“And if you had a real default, if you had a nonpayment event, we don’t know what the size of the impact would be. It could cause a major economic shock.”
Meanwhile, the Congressional Budget Office has projected that the nation will pay $10.5 trillion just in interest on the debt over the next 10 years, which McCarthy said is more than the total amount paid in interest over the last 83 years.
Biden and McCarthy met one time to discuss the debt ceiling. Though both described the meeting in positive terms, Biden has refused to meet again until House Republicans put forward a proposal showing the spending cuts they intend to make.
