In 1917 the US Congress set a limit to the amount of money the government could borrow without its – and by extension the taxpayers’ – approval. The so-called debt ceiling has been increased many times; 78 times since the 1960s alone. In 49 of those cases it was done by a Republican president, while Democrats increased it 29 times. US national debt currently stands at $31.4 trillion.
If history is any guide, then the current debt ceiling impasse will be resolved before the US government runs out of money, which is predicted to be on June 1st.
The other thing that history tells us – and which is being borne out in the current stand off – is that the debt ceiling wrangles may once have been about fiscal prudence, but that has not been true for many years.
Stand-offs are part and parcel of democratic politics and the American system seems particularly prone to them. This is especially the case when – as now – no party controls both houses of congress and the presidency.
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President Joe Biden’s signature legislative project, the €2.3 trillion Infrastructure Investment and Jobs Act, took six months to navigate Congress with numerous changes and amendments required to achieve bipartisan support.
A benign view of the debt ceiling stand-off would be that it is simply another example of US bipartisan politics at work. The prospect of default by the US and its consequences for the US and global economy is manifestly in no one’s interest. But it provides an opportunity for the sort of brinkmanship and individual deal-making that characterises US politics.
It is, of course, playing with fire. There is always a risk that a deal will not be done. There has to be some risk or else the game doesn’t work. But that brings with it the possibility of an accidental default, and this is what unsettles the financial markets.
And this time round they have more reasons to be nervous than ever before. US politics is more fractured. The ethos of bipartisanship that backgrounded the political career of President Biden is no more. It has been replaced by something altogether more visceral and divisive.
The prime exemplar and leading proponent of the new politics is former president Donald Trump. Despite his many legal difficulties he remains the frontrunner for the Republican nomination in the 2024 presidential election and has a realistic prospect of being elected.
Last Wednesday he advocated a default if Republicans do not get what they want – tax cuts and lower government spending – in the negotiations with the Democrats.
It remains likely that a deal will be done on the debt ceiling and a default avoided. But the risks of an accident keep getting higher.