On Thursday, Democrats and Republicans reached a deal to raise the debt ceiling, temporarily staving off the dire economic consequences that would accompany an unprecedented default on US debt.
Senate Majority Leader Chuck Schumer (D-N.Y.) announced the agreement on Thursday morning from the Senate floor, saying that he had reached a deal with Sen. Mitch McConnell, the Republican minority leader. The short-term increase raises the debt cap by about $480 billion, which is enough for the United States to keep paying its bills until roughly December 3.
The debt cap is a rule that limits how much money the US government can borrow to pay for its existing obligations. It has been raised dozens of times by members of both political parties, because the consequences of not raising it would be catastrophic. As I explained last week:
If Congress doesn’t raise the debt ceiling, the US will default—econ-speak that means the US government won’t be able to keep paying back its debts, particularly Treasury bonds. These are the bedrock of the global financial system, considered to be the safest of assets for the express reason that the US has never, in the history of time, defaulted on its debts. Default would likely have numerous ripple effects. The stock market would crater, leading to a loss of up to $15 trillion in Americans’ wealth, according to a Moody’s analysis. Mortgage rates and interest rates on other types of consumer loans would surge. And up to 6 million jobs would be lost, sending the unemployment rate up to about 9 percent, per Moody’s estimates.
Yet for weeks, Republicans have vowed not to help Democrats raise the debt ceiling this time around. McConnell has said repeatedly that Democrats, who hold slim majorities in both chambers of Congress, should raise the cap without GOP help through a complex process called reconciliation. But if Democrats were to raise the cap via reconciliation, they would have to revise their $3.5 trillion social spending package to add a debt ceiling increase—opening up this budget plan to Senate debate and amendment processes that Republicans could drag out or use to compromise Democratic priorities.
Speaking on the Senate floor on Thursday, McConnell made clear that his party still maintains this stance. The short-term extension “will spare the American people any near-term crisis, while definitely resolving the majority’s excuse that they lack time to address the debt limit through the 304 reconciliation process,” McConnell said. “Now there will be no question: They’ll have plenty of time.”