The Irish Times view on the US debt ceiling talks: going to the wire

Not for the first time the US is heading precariously close to defaulting on its debt. It could happen as soon as June 1st when the treasury is expected to run out of cash. Congressional Republicans, trying to leverage swingeing cuts in President Biden’s proposed budget, are engaging in brinkmanship by refusing to raise the $31.4 trillion (€28.9 trillion) borrowing cap on the total the US is authorised to borrow to fund government.

Default would be hugely costly to the US and world markets – stocks are likely to plummet and interest rates to soar. Benefit payments to retirees and veterans are likely to be cut off first. Even the prospect of default could prove expensive – a 2011 debt-standoff saw a market crash that hit household wealth and cost billions in higher interest payments. The delay in raising the ceiling cost an estimated $1.3 billion in additional borrowing costs that year.

Biden and House Speaker Kevin McCarthy’s representatives have been in desperate talks to reach a compromise, but the latter is under heavy pressure from the hard right in his party not to accept anything less than the spending cuts recently passed in their debt limit bill, a reduction of an average of 18 per cent over a decade.

Mainstream Republicans, however, keen to protect popular military, elderly care and pensions, and Medicare spending, are now confining their demands to capping less politically sensitive programmes, so-called discretionary spending. That would still hit the poor hard, affecting a swathe of spending, most notably education, child care, veterans’ care and environmental protection, with the prospect of cuts of up to a third in some areas. Yet, in reality, discretionary spending, is expected to decline over the decade as a share of the economy and is in no way responsible for the state’s runaway spending. Medicare and pensions are, on the contrary, likely to soar irrespective of Republican debt limits.

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This game of budgetary chicken is a phoney war reflective of a dysfunctional, gridlocked political system. For which we may all yet pay the price.