Race against time: US govt may shut down on Friday; what does it mean?

Trump had pressured GOP lawmakers to abandon an earlier bipartisan deal and insisted Republican leaders add a provision waiving or raising the federal debt limit before he takes office.

The bill failed by a vote of 235 to 174, with more than 30 Republicans voting with nearly all Democrats against the spending package, which would have also suspended the debt ceiling for two years.

Lawmakers in the United States racing against time to avert a government shutdown, with Democrats and Republicans unable to reach a consensus on the federal debt ceiling. With just over 24 hours left before government funding lapses, the Republican-led House of Representatives on Thursday rejected a temporary funding proposal supported by President-elect Donald Trump, throwing the nation’s finances into uncertainty. Here’s a breakdown of the current situation and the role the debt ceiling plays in this crisis.

What is Debt Ceiling?

The debt ceiling, or debt limit, is a cap set by Congress on the amount of money the federal government can borrow to meet its existing legal obligations. This includes paying for past spending on things like Social Security, Medicare, and national security. The US government’s debt currently stands at approximately $36 trillion, and as borrowing costs rise—partly due to inflation and the aftermath of the COVID-19 pandemic—the government faces increased pressure to raise the debt ceiling to continue funding its obligations.

The most recent increase to the debt ceiling occurred in June 2023, when lawmakers suspended the debt limit until January 1, 2025. When this suspension expires, the debt limit will automatically rise to match the amount of debt the Treasury Department has already issued.

Raising or suspending the debt ceiling is not a decision about new spending but rather a mechanism that allows the government to fulfil its existing financial commitments. However, this technical issue has become a political battleground, often used by both parties to push for broader fiscal priorities.

What’s at stake?

President-elect Donald Trump has demanded that a provision raising or suspending the nation’s debt limit be included in legislation to avert a government shutdown. Trump’s insistence has led to a standoff with lawmakers, who are struggling to find a solution.

The debt ceiling debate has significant implications for the US economy. Failing to raise the debt limit could lead to a catastrophic default on the nation’s debts, causing widespread economic disruption.

What happens if the debt ceiling isn’t raised?

Although there’s no immediate need to raise the debt limit, the Treasury Department can employ “extraordinary measures” to avoid default. However, these measures are temporary and may only delay the default deadline until summer 2025.

Historically, lawmakers have always raised the debt ceiling in time, recognising the severe consequences of inaction. Failure to do so would result in the government being unable to meet its legal financial obligations, which could lead to significant disruptions in services, delayed payments, and a loss of confidence in US financial stability.

Ramifications for Speaker Mike Johnson

The debt ceiling fight poses a significant challenge for Speaker Mike Johnson, who is seeking to retain his position in the new Congress. Trump’s demands have put Johnson in a difficult spot, and the outcome of this dispute may impact his future as Speaker.

Where Democrats stand

Democrats have rejected the Republican proposal, with Democratic Leader Hakeem Jeffries dismissing the plan as “laughable.” Jeffries argues that Republicans should honour the earlier spending agreement, rather than attempting to raise the debt ceiling.

As the deadline for government funding approaches, lawmakers must find a solution to the debt ceiling dispute. The consequences of failure could be severe, and the nation waits with bated breath to see how this crisis will be resolved.

Key figures

One of the most vocal critics of the proposed plan was Representative Chip Roy, a conservative from Texas, who decried the extension of the debt ceiling as reckless. “To congratulate yourself because it’s shorter in pages but increases the debt by $5 trillion is asinine,” Roy said, highlighting the party’s internal struggle over fiscal discipline.

Further complicating matters, Elon Musk – Trump’s adviser and the world’s richest man – also weighed in. Through a series of social media posts, Musk condemned the earlier deal as a “giveaway for billionaires” and urged Republicans to oppose the bill. His criticism was potent, with Trump himself taking Musk’s advice on board and pressuring lawmakers to align with his vision for fiscal policy.

Speaker of the House Mike Johnson, who had been working behind closed doors to find a compromise, is now facing intense pressure. Trump, who has been involved in negotiating government funding, warned that Republicans who fail to take action on the debt ceiling could face political repercussions. This sets up a high-stakes moment for Johnson, who must now navigate these complex political waters just before the holiday season.