“Extremist” Republicans are trying to force Americans to accept massive cuts in federal spending that will harm the middle class in a deliberate attempt “to wreck the Biden economy,” Sen. Elizabeth Warren (D-Mass.) said on March 7.
The remarks came as the opening salvo in a committee hearing to assess the possible economic impact of breaching the U.S. debt ceiling. Ultimately, the hearing showcased the two parties’ opposing visions for how to regulate the economy and preserve American jobs.
Warren and invited witnesses appearing before the Senate Committee on Banking, Housing, and Urban Affairs decried any delay in raising the nation’s $31.4 trillion debt ceiling as irresponsible and almost certain to cause financial harm.
The debt ceiling would have been breached on Jan. 19 if not for “extraordinary measures” taken by the U.S. Treasury to avoid it. Republicans have demanded spending cuts in exchange for raising the debt ceiling.
President Joe Biden has said he will not negotiate over the matter because failure to do so would put the full faith and credit of the United States at risk.
Ranking Member John Kennedy (R-La.) voiced the Republican view that there will be no default on the federal debt but nearing the debt limit is an opportunity to examine the nation’s spending habits and the effect of the growing debt on the nation.
Rock and a Hard Place
In her opening statement, Warren said House Republicans have wedged American workers between a rock and a hard place.
“Now here’s the rock. They will raise the debt ceiling, and if they don’t, House Republicans will plunge the U.S. economy into a recession and cost at least 1 million Americans their jobs,” Warren said.
“And here’s the hard place. If they raise the debt ceiling but only in return for sharp spending cuts, that will also trigger a recession and push 2.6 million Americans out of work.”
Mark Zandi, chief economist of Moody’s Analytics, testified that by attempting to balance the federal budget in 10 years without raising taxes or cutting Social Security, Medicare, or defense spending, deep cuts in all other federal programs would be required.
“It’s $16 trillion in cumulative cuts over the 10-year period. So just divide by 10. That’s $1.6 trillion per annum,” Zandi said.
Achieving that goal would require “effectively eliminating all non-defense discretionary spending,” including housing inspection, food inspection, transportation spending, overseas aid, and Medicaid, Zandi said.
Monetary Versus Fiscal Policy
Kennedy sought to portray the Republican insistence on spending cuts as a desire to save jobs by exercising congressional authority to regulate fiscal policy.
“It is unthinkable to me that the United States Congress will not extend the debt ceiling,” Kennedy said.
“There’s a moral principle involved and a practical principle. If you’re going to have a party, you’ve got to pay the band. And it’s time for us to pay the band and we’re going to do it.”
The spending discussion is not a refusal to pay the nation’s bills Kennedy said, but an attempt to deal with inflation in a responsible way.
The Federal Reserve Board has been attempting to do that by raising interest rates, and the effect of that policy can be measured in only one way, Kennedy said: increased unemployment.
“[Fed] Chairman Powell, acting on his own, just using monetary policy, will have to raise rates to 10.6 percent, and that’s going to put a lot of people out of work,” Kennedy said.
A better approach, Kennedy believes, is to slow the rate of inflation using fiscal policy, meaning controlling the rate of federal spending.
“If we can slow the rate of growth in spending and debt accumulation to stimulate the economy less, that’s gonna save a lot of people’s jobs,” he said.
Congress will have until Aug. 19 to determine a spending plan and raise the debt ceiling, according to Zandi.
He calculated that as the X-date when the country will again reach the debt limit, this time with no further workarounds to pay the country’s bills without further borrowing.