Democrats seek to avoid shutdown as they scramble for debt ceiling

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The US Senate was about to vote on a measure to avoid a government shutdown as Democrats scramble to find a way to raise the US debt ceiling and avoid what a group of executives and policymakers are warning that a default will be “catastrophic” in less than three weeks. .

Democrats originally tried to push through a two-pronged bill that would fund the federal government and raise the debt ceiling.

After Republicans halted efforts to raise the borrowing limit, Chuck Schumer, the top Democrat in the Senate, said Wednesday that he would soon introduce a “ongoing resolution” to continue funding the federal government before the 12:01 a.m. deadline Friday. Republicans said they would sign off on such a measure. A vote is expected on Wednesday.

Schumer and Democrats still have to grapple with the looming issue of a possible government default. Despite raising the debt ceiling three times when Donald Trump was in the White House, Republicans are now objecting to raising the borrowing limit and accusing Democrats of irresponsibly spending federal money.

The opposition party, led by Senate Minority Leader Mitch McConnell, on Tuesday blocked an avenue that would have allowed Democrats to single-handedly raise the debt ceiling with a vote on the party’s line in the Senate.

The impasse means Schumer now has about 20 days to find a way to raise the debt ceiling before Oct. 18, when Janet Yellen, the US Treasury secretary, warned that the government would run out of money to meet its debtor obligations.

“The only way Congress in this day and age gets anything done is by getting very close to deadlines,” said Jim Manley, a former aide to Democratic Senators Harry Reid and Ted Kennedy.

“So far, we as a country have not suffered from the economic consequences of such political games, but at some point, someone will make a mistake and something bad will happen to the country,” he added.

Investors are already increasingly concerned about the possibility of “inflation” – higher inflation and lower economic growth – with US stocks posting their biggest loss since May on Tuesday.

Every time this happens, it gets fixed, but we shouldn’t even get that close

“Investors should note that there is no clear path to dealing with the debt ceiling,” said Brian Gardner, policy analyst at Stifel. “It could be a tense few weeks in Washington which could add to market volatility.”

Schumer has repeatedly ruled out a complex legislative maneuver – known as a budget compromise – that would allow him to push the debt ceiling increase through the Senate with Democratic votes only.

“To do this through reconciliation requires pingponging separate bills from the Senate and the House of Representatives. It is very risky, and could lead us into default,” Schumer said on Wednesday.

“If Republicans really want to prevent defaults as they claim, they should step aside and let Democrats do the responsible thing,” he added.

This paved the way for what some Washington insiders say is a dangerous game between the Democratic and Republican leadership in the Senate.

With little room for error and a deadline quickly approaching, US companies are starting to sound alarm bells. Jamie Dimon, CEO of JPMorgan Chase, said Tuesday that the bank has begun preparing for the “potentially catastrophic event” of a credit default in the United States.

“Every time this happens it gets fixed, but we shouldn’t even get close to it,” Damon told Reuters.

Morgan Stanley, another large US bank, said it is also planning for a possible US credit default.

The Business Roundtable, one of Washington’s leading business lobby, said on Tuesday that failure to raise the debt ceiling would pose an “unacceptable” risk to the US economy.

The looming debt crisis has arrived just as Democratic lawmakers and the White House are grappling with a partisan infighting that threatens to upend President Joe Biden’s entire domestic legislative agenda.

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Democrats on Capitol Hill are engaged in separate negotiations aimed at salvaging Biden’s ambitious plans for a $1.2 trillion bipartisan infrastructure package and a larger $3.5 trillion budget deal that would bring unprecedented investment in social services.

Pelosi said the House will vote on the infrastructure bill — which the Senate has already passed — on Thursday, but dozens of progressive Democrats have threatened to torpedo the measure, insisting they vote against it unless they vote on the larger budget bill first.

Additional reporting by Eric Platt, Andrew Edgecliffe Johnson and Joshua Franklin in New York and James Politi in Washington

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