We don't want to go into default, that injures everyone, just as the economy is recovering from COVID shutdowns. Pensions could be affected, there could be runs on banks and everything else that happens when people don't feel safe.
It doesn't really make a difference how Manchin and Sinema vote, Democrats can't pass this by reconciliation. It will take Republican votes to get past the filibuster
What is a US debt default?
At its most basic level, a default is when a person or an entity cannot repay a debt on time. For instance, when a person can't make a payment on a mortgage or a car loan.
When a country does this, it's known as a sovereign default. This is when the country cannot repay its debt, which typically takes the form of bonds.
So if the US were to default, it would essentially stop paying the money it owed US Treasury bond holders.
A quick refresher: the US government spends more money than it collects in taxes. So to make up the shortfall, it raises funds by asking investors to buy US Treasury bonds. Investors, such as the Chinese government and pension funds, do this because these bonds are seen as a safe place to invest money.
What are the consequences of a US default?
No one really knows exactly what would happen, but the likelihood is that markets around the world would plunge and global interest rates would rise.
This is because if the US government could not repay the money it owed bondholders, the value of the bonds would decrease. And the yield - the return the government pays to an investor - would rise. This is because it would be perceived as a less safe investment.
This would prompt interest rates around the world, which are often tied to those of US Treasuries, to spike.
Furthermore, the impact on the US's creditors could be dire. Japan, for instance, owns about $1.14 trillion of US debt - which is equivalent to 20% of its annual economic output.
In the US, Goldman Sachs estimates that $175bn would immediately be withdrawn from the US economy and it could lead to a very deep recession.
How does the US government pay its bills anyway?
Strangely, no one really knows exactly how it works.
Each day, the US Treasury receives a little over two million bills from various federal agencies.
According to analysts at Credit Suisse, there are three main offices that pay those bills: the Department of Defense Disbursing Offices, the Bureau of the Fiscal Service and the Financial Management Service.
Technically, the payment systems can be turned on - to make payments - or off - but not much else.
If prioritisation were possible, the US Treasury would probably turn off the tap at the Department of Defense Disbursing Offices and the Financial Management Service. That would leave the Bureau of Fiscal Service, which pays money to bondholders.
Yellen is now saying that default will occur in October.
The “extraordinary measures” that the Treasury Department has been employing to finance the government on a temporary basis since Aug. 1 will be exhausted next month, Ms. Yellen said in a letter to lawmakers. She added that the exact timing remained unclear but that time to avert an economic catastrophe was running out.
“Once all available measures and cash on hand are fully exhausted, the United States of America would be unable to meet its obligations for the first time in our history,” Ms. Yellen wrote.
To delay a default, Treasury has in the last month suspended investments in the Civil Service Retirement and Disability Fund, the Postal Service Retiree Health Benefits Fund and the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.
The distribution of pandemic relief payments this year and uncertainty over incoming tax payments this month have made it more challenging than usual to predict when funds will run out. Ms. Yellen said that a default would cause “irreparable harm” to the U.S. economy and to global financial markets and that even coming close to defaulting could be harmful.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers and negatively impact the credit rating of the United States,” she wrote.
https://www.nytimes.com/2021/09/08/busi ... fault.html
The showdown has again put the parties into a game of chicken, with a debt default and potential economic crisis as the consequence.
Ms. Pelosi, at her weekly news conference on Wednesday, said emphatically that Democrats would not include a statutory increase in the government’s borrowing authority in a budget bill being drafted this month. That bill, under complicated budget rules, could pass without Republican votes in the Senate.
Instead, Democratic leaders will dare Senate Republicans to filibuster a bill that does raise the debt ceiling.
“We Democrats supported lifting the debt ceiling” during the Trump administration, she said, “because it was the responsible thing to do.” She added, “I would hope that the Republicans would act in a similarly responsible way.”
Democrats have several options they are considering. The government will run out of operating funds at the end of the month, so a debt ceiling increase could be attached to a stopgap spending measure — meaning a Republican filibuster would not only jeopardize the government’s full faith and credit, it could shut down the government.
Democrats could also attach it to a major infrastructure bill that passed the Senate with bipartisan support and is supposed to get a House vote by Sept. 27.
"Everyone is entitled to their own opinion, but not their own facts." - Daniel Patrick Moynihan