Biden Warns of Job Loss, Economic Disaster If Debt Ceiling Is Breached

Washington Post photo by Demetrius Freeman
President Biden made the remarks while meeting with members of his Cabinet on Friday.

President Biden on Friday welcomed the strong jobs report and the lowest unemployment rate in a half-century and warned that Republicans’ “manufactured crisis” on the debt limit could send the U.S. economy into a free fall.

“We’ve made enormous progress over the past two years,” said Biden, who is scheduled to meet with congressional leaders next week to discuss raising the debt ceiling. “The last thing this country needs, after all we’ve been through, is a manufactured crisis … driven by the MAGA Republicans in the Congress.”

White House economists said in an analysis released Wednesday that an extended breach of the nation’s borrowing limit could wipe out more than 8 million jobs and cause “severe” economic damage.

If the United States fails to make its payment obligations, interest rates could spike as investors demand a higher premium on purchases of government debt. Higher interest rates would ripple throughout the economy, making mortgages, credit cards and purchases more expensive for most Americans. Retirement accounts, consumer and business confidence, and consumption would all take a hit.

Biden warned Friday that defaulting on the country’s debt could erase economic gains made during the first two years of his presidency. He pointed to Friday’s report by the Bureau of Labor Statistics – which found that employers created 253,000 jobs in April and unemployment fell to 3.4 percent, which matches a low from May 1969 – to show what is at stake if Congress doesn’t act.

Biden has insisted that Congress vote to increase the debt ceiling with no conditions attached – as Congress did three times during the Trump administration. But House Republicans demanded deep spending cuts in exchange for raising the debt limit – though they have yet to put forth a proposed budget.

“The two are totally unrelated,” Biden said of the debt ceiling and the nation’s budget during a Cabinet meeting at the White House on Friday. “Whether you pay the debt or not doesn’t have a darn thing to do with what your budget is.”

The limit is a cap on the total amount of money that the United States is authorized to borrow to fund the government and fulfill its financial obligations.

Last week, House Republicans passed a measure that would raise the debt limit but also slash the federal budget back to levels adopted in the 2022 fiscal year, then cap future growth of federal agencies’ budgets at 1 percent for the next decade.

Their bill stands no chance in the Democratic-led Senate, and Biden said he would veto it.

The president said he will reiterate to congressional leaders during next week’s meeting that they must do what “every other Congress” has done: raise the debt limit and avoid default.

“As I’ve said all along, we can debate where to cut, how much to spend and how to finally move the tax system where everybody can pay their fair share,” Biden said. “But not under the threat of default.”

The four congressional leaders – House Speaker Kevin McCarthy (R-Calif.), House Minority Leader Hakeem Jeffries (D-N.Y.), Senate Majority Leader Charles E. Schumer (D-N.Y.) and Senate Minority Leader Mitch McConnell (R-Ky.) – are expected to attend the meeting, which was announced the same day that Treasury Secretary Janet L. Yellen warned Congress that the country risks default as early as June 1 if the limit isn’t raised.

The prospect of a debt ceiling collapse, Biden added, is already becoming “an issue in other countries” that he said are asking: “What’s the United States going to do? Are they really fooling around with not paying their debts?”

The president also warned on Friday that House Republicans’ proposed spending cuts would put millions of Americans at risk of losing access to Medicaid. Republicans’ cuts, Biden said, would affect federal law enforcement agencies, as well as public schools and health-care programs for veterans.

“Let’s have the normal arguments,” Biden said “That’s why we have a budget process, to debate … so you all can see it and know exactly what it is that they want to spend the money on, what they want to cut.”