House Speaker Kevin McCarthy (R-Calif.) traveled to New York on Monday to warn Wall Street that the federal government could fail to pay its bills this year, potentially roiling financial markets.
McCarthy has vowed Republicans won’t allow the government to borrow more money to make bond payments and cover basic expenses unless President Joe Biden agrees to a set of Republican demands.
The only problems are that Biden has refused to negotiate with McCarthy, and Republicans haven’t figured out what they even want to demand. So McCarthy told an audience at the New York Stock Exchange that they should worry.
“I have not heard from the White House since our very first meeting,” McCarthy said. “The longer President Biden waits to be sensible to find an agreement, the more likely it becomes this administration will bumble into the first default in our nation’s history.”
McCarthy previously told Biden in a letter that Republicans would support cuts to discretionary spending, meaning federal agencies would have less funding but big programs like Social Security and Medicare wouldn’t be affected. And Republicans have suggested they would like stricter “work requirements” in programs like Medicaid and the Supplemental Nutrition Assistance Program.
On Monday, McCarthy said that in the next few weeks the House would pass a bill to raise the debt ceiling until next year, limit federal spending to levels set in fiscal 2022 and allow increases of 1% annually. He also said the proposal would “restore work requirements that ensure able-bodied adults without dependents earn a paycheck.”
The White House preemptively rejected McCarthy’s stock market speech on Monday morning, noting that Republicans didn’t make a big fuss about the debt limit when Donald Trump was president.
“There is one responsible solution to the debt limit: addressing it promptly, without brinksmanship or hostage taking — as Republicans did three times in the last administration and as Presidents Trump and Reagan argued for in office,” White House spokesman Andrew Bates said in a statement.
“Speaker McCarthy is holding the full faith and credit of the United States hostage, threatening our economy and hardworking Americans’ retirement,” Bates said, adding that stricter work requirements would take food and health care away from millions of people.
A major reason for Biden’s refusal to negotiate with McCarthy over a bill to raise the debt ceiling and allow the government to pay its bills — aside from the fact that if the government defaulted, it could cause a financial crisis and recession — is that it’s been unclear whether McCarthy has the backing of his own party. If Republicans are finally able to pass a bill in the House this month, the debt ceiling drama won’t be resolved, but McCarthy will be in a stronger position to try to wring concessions from Biden.
Ultimately, to avoid a default, McCarthy will need to agree to legislation that’s amenable to both Biden and Democrats in the U.S. Senate, meaning the end product would likely be something that right-wing House Republicans don’t like. McCarthy won the speakership earlier this year partly by making concessions to his right flank, including by giving individual members the power to trigger a no-confidence vote in the speaker.
To build his leverage, McCarthy asked his Wall Street audience to rally to his cause.
“Don’t sit back, join us,” he said. “Join us in demanding a reasonable negotiation ― a responsible debt ceiling. An agreement that brings spending under control.”
It’s not clear whether the speech had any effect on investor sentiment. In the hour after McCarthy’s speech, stock values in the Dow Jones Industrial Average had increased modestly.