Just four months ago, Speaker Kevin McCarthy (R-CA) faced such a fractured caucus that he required a whopping 15 votes, the longest contest since before the Civil War, to win the House speakership, while Democrats feted President Joe Biden as the first president in history to defend every single incumbent Senate seat up for reelection.
And yet the tables have turned dramatically since, with McCarthy coalescing his razor-thin Republican majority to pass a debt ceiling bill that shaves just $4.8 trillion off the $51 trillion national debt projected by 2033. Now, it is Biden who is blustering, and in a crucial early win for McCarthy, the Californian has called his bluff, offering the president a deal he cannot afford to refuse.
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Although Treasury Secretary Janet Yellen warned at the end of last year that Congress had only until early June to pass a debt ceiling increase before the U.S. government begins to default on its debt, Biden waited until last month to return McCarthy's phone calls. By that time, McCarthy managed to get all but four Republicans to pass a debt limit increase that simply stagnates future spending at 2022 levels, hardly a Koch-fueled spending searing. Now, unable to convince McCarthy to pass an eleventh-hour "clean" debt limit increase — that is, one that hands Uncle Sam back his Amex Black with a smile and no spending limits — Democrats are left dreaming up delusions to save Biden from the problem of his own making.
First, progressives beckoned the Treasury to mint a trillion-dollar platinum coin and simply "ignore" the Supreme Court's inevitable ruling that it runs afoul of the Coinage Act. Yellen quickly poured cold water on the idea, warning her party that Federal Reserve Chairman Jerome Powell would never accept such a payment as legitimate and that no law would require the Fed chairman to do so. Naturally, Senate Democrats have pounced on a second and equally stupid idea.
Progressives have decided to argue the 14th Amendment hides a secret power for the president to bypass Congress in authorizing new debt, unbeknownst to the world's superpower for 155 years. Despite President Barack Obama conceding in 2011, during his own debt ceiling negotiations, that his legal team considered the notion bunk, supposed elder statesmen of the Senate such as Bernie Sanders (I-VT) and Ed Markey (D-MA) insist they know better.
If Biden indeed tries to listen to the #DoSomething faction of his party, he can expect a roller coaster of legal challenges, culminating with a definitive death blow from the Supreme Court, should the matter even get that far. In the meantime, markets and our global trading partners would simply not accept the move as legitimate. Mass sell-offs of Treasurys would jack interest rates well past our current 15-year high, and the obvious panic over the credit crunch to come (and come it will) would lead to the sort of bank runs that killed First Republic Bank overnight. Beyond the immediate and categorical downgrade to U.S. credit ratings, the world's reserve currency would sputter in status, granting Beijing the greatest chance at its goal of replacing the greenback with the yuan in a new world order.
Most crucially for Biden, economists anticipate that inflation — which, recall, the Fed single-handedly managed to push from cresting the double digits back down to below 5% despite the White House's overtly inflationary fiscal policy — would blow past 11%, and the unemployment rate would surge past 12%, should the government cease to pay its liabilities.
Biden managed to sweep the midterm elections, in which inflation (misleadingly) looked like it was significantly slowing and Republicans managed to run a slate of sore losers. Furthermore, the crux of Biden's campaign and the progressive economic experiment is that everything, from prices soaring at the highest rate in 40 years to shrinking retirement funds, is worth finally catching the white whale of "full employment."
If Biden fails to take up McCarthy on a bill that the House already passed, declaring his invocation of the 14th Amendment as Michael Scott once declared bankruptcy, the Treasury will be left with no choice but to heed the inevitable injunctions passed through the courts. In effect, the 14th Amendment option is merely a default with more handwringing and deflecting blame on the evil Republicans who only wanted to tack an extra $14 trillion onto the national debt instead of another $19 trillion. The blame will rest solely on the Democrats who decided the most minor of haircuts was not worth avoiding a stagflationary crisis that would put the Nixon-Burns fiasco to shame. Biden simply cannot survive reelection with double-digit inflation and unemployment, and that's why McCarthy is correct to call his bluff.