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Biden, on the debt ceiling: ‘We averted an economic crisis and an economic collapse’

The President of the United States has addressed the nation from the Oval Office a day after the deal which suspends the debt limit was passed in Congress

Joe Biden
Joe Biden addresses the nation from the Oval Office on June 2, 2023.REUTERS

The President of the United States, Joe Biden, has decided to embrace the staging reserved for big occasions to launch a message to the country this Friday after the approval of the law that suspends the debt ceiling. In the Oval Office of the White House and during the prime time television slot, Biden sung a song of victory for the agreement: “We averted an economic crisis and an economic collapse”, he said in a speech that lasted about 13 minutes.

The approved bill suspends the debt ceiling until January 2025, after the next presidential elections, in exchange for some spending cuts. The signing of the law by Biden allows it to come into force days before the date that Janet Yellen had set as a deadline, June 5, although apparently she reserved a little leeway, since in the same letter she later said that what could not be covered were all the payments of that “week”.

In any case, not extending the debt ceiling and defaulting on obligations, especially debt default, would have had potentially catastrophic economic consequences.

“No one got everything they wanted, but the American people got what they needed”, was Biden’s central message. The President emerges strengthened by the agreement. It also allows him to show his moderate profile, capable of promoting agreements with the Republican Party and of combating the heavy polarization of U.S. politics.

Biden called for unity and peace in what at times seemed to be a speech focused on re-election in the presidential elections of November 2024. He has promised, for example, not to let up in his efforts to raise taxes on the wealthiest and corporations, although he has not been able to do so in this agreement. Nor will he be able to do so in the remainder of his current term, bearing in mind that the House of Representatives is controlled by the Republicans.

“We’re cutting spending and bringing deficits down. And we protected important priorities from Social Security to Medicare, to Medicaid to veterans, to our transformational investments in infrastructure and clean energy,”, he added, showcasing some of the legislative accomplishments of the first half of his term, when the Democrats controlled both chambers.

Some of the legislation he boasted about was passed by members of Congress from both parties, as highlighted by a Biden who did not spare praise for the Republican leaders of Congress: House Speaker Kevin McCarthy and Senate Republican Minority Leader Mitch McConnell. “They acted responsibly, and put the good of the country ahead of politics,” he said. The president also seemed to launch a veiled allusion to his possible rival in 2024, Donald Trump, by pointing out that “extremist voices” wanted the United States to default.

“Essential to all the progress we’ve made in the last few years is keeping the full, faith, and credit of the United States and passing a budget that continues to grow our economy and reflects our values as a nation”, he also said. “And that’s why I’m speaking to you tonight. To report on a crisis averted and what we are doing to protect America’s future. Passing this budget agreement was critical. The stakes could not have been higher”, he stated.

The law has been fast-tracked through Congress. The Senate approved on Thursday the same legal text that came out of the House of Representatives on Wednesday, without touching a comma, despite the anger of some senators. Any amendment would have meant that the law would have had to be voted again by the lower House, delaying the process at a time of maximum urgency.

Once the bill is signed into law, the Treasury will have a free hand to issue bonds -short and long term- to raise money to finance the $92 billion dollar payments scheduled for next week.

The bill changes some policies, including imposing new work requirements for some Americans receiving food aid and greenlighting a gas pipeline in the Appalachians, which many Democrats oppose. The policy also strengthens funding for defense and veterans, cuts new funding for the tax agency, and imposes automatic 1% cuts if Congress fails to pass its budgets annually.

The Congressional Budget Office, an independent agency, said the package’s spending restrictions would reduce the deficit by $1.5 trillion over the decade, one of the main goals of Republicans trying to rein in the debt burden.

A default would have had catastrophic consequences for the economy. The White House Council of Economic Advisers issued a report that said the threat of default was already having an effect; a default episode, however short, would have left a costly bill and a prolonged default would have caused gross domestic product to fall by 1.5% in the third quarter (to an annualized quarterly rate of 6.1%) and pushed up the unemployment rate by five points, destroying 8.3 million jobs.

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