A key Democrat is warning this week that only a stock market collapse will break the partisan stalemate over raising the debt ceiling and preventing a government default over the summer.
Rep. Jim Himes (D-Conn.), a former Goldman Sachs executive and senior member of the Financial Services Committee, said the Republicans’ opposition to a debt limit hike without steep spending cuts is so entrenched that only an economy-rattling market tumble — like the crash that accompanied the financial crisis of 2008 — will shake GOP leaders to accept a bipartisan compromise.
“I fear that this ends the way the famous TARP, the Troubled Assets Relief Program, got passed in 2008. And that is when the markets finally say, ‘You guys have got to stop screwing around,’” Himes said Thursday during a wide-ranging interview in his Capitol Hill office.
TARP was Congress’s controversial response to the global financial crisis 15 years ago, providing $700 billion to stabilize teetering banks and restore faith in reeling credit markets. Championed by then-President George W. Bush and his treasury secretary — former Goldman CEO Hank Paulson, who warned of a global economic collapse if the funding was denied — the bill was killed in the House the first time it hit the floor in late September 2008.
The surprise vote sent the stock market into a freefall, pulling the Dow down 7 percent — the steepest decline since the attacks of 9/11 — and the Nasdaq down more than 9 percent. All told, the U.S. equity market lost $1.2 trillion in a day. Four days later, after making minor changes, spooked House lawmakers passed the bill and sent it to Bush’s desk.
Himes, who was first elected to Congress a month later, predicted it will require a similar scare to convince the Republicans who control the House to pass a debt ceiling increase that can also win President Biden’s signature.
“Sadly, I think it’s going to take that kind of market signal to wake my ideologically frenzied friends up and just say, ‘Let’s move on and do some real stuff,'” Himes said.
The debate surrounding the debt limit is growing more urgent as the government inches closer to the important moment when it exhausts the “extraordinary measures” it’s currently using to pay its debts — a mystery date Treasury officials say could come as early as June. Unless Congress raises that cap, the government would be unable to pay all of its existing obligations, marking the first default in U.S. history. Economists of all stripes have warned the effect on the global economy could be catastrophic.
Biden, from the start, has demanded a “clean” debt ceiling bill absent any other provisions — a stipulation Speaker Kevin McCarthy (R-Calif.), who’s leading the Republican negotiations, has refused.
Pressured by conservatives in his conference, McCarthy is insisting on steep spending cuts to accompany the borrowing hike. As an opening bid, he introduced legislation on Wednesday to cut federal spending by $4.5 trillion over the next decade, according to GOP estimates, while raising the debt limit by $1.5 trillion or through March 2024, whichever comes first.
Republican leaders are racing to secure the support to pass the bill early next week, but they have some work to do to overcome the reservations from some GOP lawmakers — conservatives and moderates alike — who are fighting for favored changes.
Leaders are voicing confidence heading into the vote — “The cup is half full, we can get there,” McCarthy said — and even some of the most conservative GOP lawmakers are signaling their intent to support the package.
“[Democrats] certainly have been floating the notion that they didn’t think we can get to 218,” said Rep. Dan Bishop (R-N.C.), who was among the conservatives who forced McCarthy to adopt a host of concessions — including a tougher line on deficit spending — in support for his Speakership bid in January. “I think they underestimate both where we’ve begun and what we accomplished in January to get ourselves better organized around clear ideas.”
Still, GOP leaders are reportedly short of 218 Republican votes, and Democratic leaders are warning McCarthy that he should expect no help from across the aisle.
“We’re at a point now where House Republicans are going to have to produce the votes for their extreme legislative proposal,” House Minority Leader Hakeem Jeffries (D-N.Y.) told reporters Thursday.
Even if the bill passes the House, it’s dead on arrival in the Democratic-controlled Senate, putting the sides closer to default without a resolution. The dilemma facing McCarthy is finding some compromise that can win bipartisan support, for the sake of avoiding a default, without angering conservatives to the extent that they attempt to topple him from power — a process he agreed to make easier as part of his deal with them in January.
Himes said the challenges facing McCarthy are much tougher than those that confronted former Speaker John Boehner (R-Ohio), who had a much larger majority to work with during the debt ceiling battle of 2011, when the U.S. credit rating was downgraded for the first time in history.
“It’s unquestionably much worse,” he said. “One hundred days of experience as Speaker, and he’s got a tiny majority. And that majority includes people who — let me be diplomatic and say are unpredictable.”
Himes, echoing a chorus of others in his party, was quick to point out that Democrats voted to raise the debt limit three times under former President Trump — and even Republican deficit hawks were largely silent when those votes occurred under a GOP president.
“Remember, three times during Donald Trump the debt ceiling got raised, and you didn’t even notice because Kevin McCarthy and all the Republicans were like, ‘Let’s not screw around here now, we’ve got a [Republican] president,’” he said. “Now all of a sudden they need to take the grenade out, pull the pin and put it on the table.”
Democrats, he added, are happy to debate the merits of federal programs and the funding provided to them. But that conversation should happen in the normal process of passing appropriations bills, he said, not with a federal default hanging in the balance.
“God bless you, if you want to cut food stamps to hungry children, if you want to make it harder to go to college, put that idea forward. But do it as part of the regular legislative process where we can debate it,” Himes said. “You don’t get to say, ‘We’re going to cut food stamps, and if you don’t do it, we’re blowing up the economy.’ Which is what the debt ceiling conversation is all about.”
Amid the debate, some moderate Democrats are quietly voicing frustrations that Biden has refused to negotiate with McCarthy. But a vast majority of the caucus is sticking with their ally in the White House, warning opening that door would set a dangerous precedent for debt ceiling debates in the future. Himes said his advice to Biden would be to hold his ground.
“I would tell the president, ‘You can negotiate. [But] there’s a reason we don’t negotiate with hostage-takers,’” Himes said. “Because you’ll be doing it again real soon.”