A crucial week is approaching in the USA: the country urgently needs to raise the debt limit, otherwise bankruptcy threatens. At the same time, President Joe Biden wants to spend trillions on infrastructure and social issues, but does not have a majority of his own.
In Washington everything is currently in each other’s way: the government opposition, the empty coffers the debt, the left within the ruling party the Realo wing. And of course time is of the essence. A lot. The dispute over the US budget should be resolved within this week, otherwise there is a threat (again) of a budget freeze including a “government lockdown” as last seen in 2019. US President Joe Biden has canceled a trip to Chicago because of the situation.
What’s going on in the USA?
The United States is squeezing nearly 23 trillion euros in debt. They are not allowed to have more than 24 trillion because of the statutory upper limit. That should be achieved on October 18, as Finance Minister Janet Yellen announced. Should it come to that, the country would be insolvent – unless the debt ceiling is raised, as has happened very often in the past.
However, the current annual budget ends in September, ie on Friday night; a new budget has not yet been decided. The USA therefore needs a transitional budget, without which there would be a so-called shutdown. This means that hundreds of thousands of federal employees would have to go on unpaid compulsory leave and close numerous public institutions.
What is preventing the parties from adopting a transitional budget?
The ruling Democrats have submitted a draft for this, but linked it with a suspension of the debt ceiling, which in turn has met with resistance from the Republicans, which is why they blocked the project in the Senate. The opposition accuses the Democrats of irresponsible budgetary policies. If no agreement is reached, the USA faces insolvency. According to Finance Minister Yellen, this could lead to a “historic financial crisis” and an “economic catastrophe”.
What role does the trillion investment package play?
In the past it was very common for the government and the opposition to persevere because of their enormous debt burden. This year, however, there are two gigantic spending items from Joe Biden, which are controversial not only between Democrats and Republicans, but also within the party of the US President.
It’s all about this:
Joe Biden wants to spend the incredible sum of one trillion euros to invest heavily in roads, bridges, train routes, broadband internet, water pipes and climate measures. Because in many places in the USA the infrastructure of this kind is ailing. In order to approve the money, both chambers of parliament have to agree. The Senate has already said yes (also with votes from the Republicans), now the House of Representatives has yet to give its blessing. But here the resistance comes from the progressive wing of the Democrats.
Left-wing MPs only want to vote for the infrastructure package if a social package weighing 3.5 trillion dollars, i.e. almost three trillion euros, is progressing at the same time. They fear that the social package in the Senate could peter out once the infrastructure package has been approved and they no longer have any leverage.
The chairman of the House of Representatives, Democrat Nancy Pelosi, postponed a vote on the infrastructure package planned for Monday. This is to gain time for deliberations on the social package.
What reforms are planned?
The social package is the heart of Biden’s reform plans and would be the largest expansion of the welfare state in the United States in decades. It provides $ 350 billion annually for education, health care, families and climate protection over a period of ten years. In contrast to the infrastructure package, we are also talking about “human infrastructure”.
The measures are to be financed through higher taxes for companies and the rich. The opposition Republicans firmly reject the plans. However, Democratic senators also have reservations. Because they only have a wafer-thin majority in the Senate, they cannot afford a single deviator – otherwise the social program will fail.
So who stands in the way of whom and how?
Left-wing Democrats block their approval of the billion-dollar infrastructure deal as long as three times the amount is not released for social affairs. The Republicans, on the other hand, support the infrastructure package, but reject the social reforms with reference to the costs – and therefore prevent the increase in the debt ceiling.
The result: a kind of Mexican standoff, a political stalemate that, in the worst case scenario, can plunge the country into crisis.
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