Default in the U.S. is off the table. Will it lasts long?

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At the end of May, a miracle happened and the U.S., at least for a while, will be able to forget about the dreaded word “default”. The whole of America breathed a sigh of relief when the political circus in Washington with the raising of the national debt ceiling ended with at least a temporary peace between Democrats and Republicans. On May 28, Congress and the White House reached a definite budget compromise, and it was very timely, because by that time the U.S. government had less than $50 billion left on its hands. The main point of the deal was to freeze the growth of government spending by no more than 1% over the next six years. First of all, the U.S. tax service will be hit, which will be cut. This will be a kind of revenge of the Republicans for the unwillingness of tax officials to investigate corruption of the Biden family.

However, this compromise is very shaky in the long run and does not guarantee the prevention of similar threats in the future. Speaker McCarthy wants to portray this as his big victory because Washington has for the first time recognized the need to spend less money, and its budget outlays in 2024 will at least not increase as much as they did in 2022 and 2023. However, many Republicans are still unhappy with the details of the deal because they sought much bigger spending cuts. The state budget deficit will still be as much as $2 trillion this year and the bipartisan deal is unlikely to affect it much. This sad picture immediately complicated the task of passing a budget in Congress, and also clearly showed the disunity within the Republican Party, which was clearly evident during the election of the Speaker in January of this year. Already on the day of the deal, it was clear that the Republican right wing and Trumpists would try to block the debt ceiling increase in protest, even though it would be a hopeless political action.

Against this backdrop, Congress immediately criticized the budget compromise plan reached by Speaker McCarthy and Biden. Moreover, the more information that emerged about the essence of the deal, the worse the attitude towards it was. Ironically, the budget bill was damned not only by radical Republicans, but also by left-wing Democrats. Trump’s supporters call the compromise a de facto betrayal of Republican interests, because it provides for only a very mild limitation of budget spending is drafted in the interests of various lobbyists and allows the White House to easily revise it next year. At the same time, the debt ceiling will be raised by as much as $4 trillion and the U.S. national debt will rise to $35 trillion in less than two years, contradicting the very Republican strategy of getting away from the debt needle.

Meanwhile, the most hawkish Republican members of Congress cite China as the main beneficiary of the draft budget, arguing that Beijing is deliberately preventing a big increase in defense spending and strengthening the U.S. military. While this view is opposed by Trumpists such as Matt Gaetz, who favor cutting military spending and auditing its beneficial uses, it too can be seen as an indirect blow to McCarthy’s success. At first glance, the left-wing Democrats are paradoxically outraged as well, because they would like to spend more money on social services, which is definitely not possible with the new budget. Even before the vote, 20-30 right-wing Republicans began hinting that they would not vote for the budget compromise, and that, along with about a hundred Democrats, gave away the articulate opposition to the budget compromise. Because of this, McCarthy had to lean on centrists in both parties to get the vote outcome he wanted, demonstrating in practice the power of the “non-partisan” establishment in Parliament. However, such a process damages the speaker’s image, disavowing his role as a Republican leader. Against this background, McCarthy’s opponents have started talking about the possibility of launching a vote of no confidence in the Speaker and plunging Washington into a new political crisis. The rift in American politics is now such that finding a compromise is becoming an almost impossible mission, and this is the answer to the question of why the quite routine budget process has brought the country to the brink of default.

But, despite all the difficulties, the power of the establishment was very great, and at the very end of May the budget deal managed to pass a very important test and was passed at the Congressional committee level. On May 31, the bill was already facing a much more difficult procedure involving its passage by the House of Representatives. Then the lawmakers were in a hurry, because only 5 days could be left before the critical day of default. The right wing of the Republicans, knowing this, blackmailed Speaker McCarthy, demanding significant concessions from him. For example, one of the influential Republicans, Marjorie Taylor Greene, demanded guarantees from McCarthy that he would support the start of impeachment proceedings against Biden or members of his cabinet in exchange for Trump supporters among lawmakers voting in favor of the budget. The head of the Department of Homeland Security, who can’t handle the immigration crisis, was among the candidates to be fired. And the FBI director wants to be charged with contempt of Congress for refusing to provide documents about the Biden family’s corruption. This is considered a criminal offense for which the head of the FBI could theoretically face up to one year in prison.

In turn, left-wing Democrats, including Alexandria Ocasio-Cortez, refused to support the budget since it cuts social spending, a deal criticized even by some Republicans. Speaker McCarthy, under such circumstances, finally decided to form a coalition to decide from centrists in both parties, but right-wing Republicans responded by threatening an automatic vote of no confidence in him, and to leave the country without a speaker on the very eve of default. The stakes in the budget standoff were very high, and any wrong decision threatened to bring the country to the brink of default. Still, no one wanted to bring the country to a real default, and the opponents of the deal limited themselves to blackmail. That’s why, in the end, both the House of Representatives and the Senate approved raising the debt ceiling with the votes of centrists in both parties. Only 149 Republicans out of 222 voted for this decision, but they were joined in time by the Democrats, who helped to pass the bill only to prevent the default of the United States. According to the adopted compromise, the growth of U.S. government spending should now not exceed 1% over the next 6 years. In 2025 it will save only a paltry $64 billion, which is a drop in the ocean against the background of the state budget deficit of $2 trillion. The national debt ceiling is raised until January 1, 2025, when it will have to reach $35 trillion. This could already be inherited by the next U.S. president if Biden loses the election. Then, for example, Trump will have every opportunity not to raise the debt ceiling and to organize a technical default, as he recently urged Congress to do. However, this will be a matter of the distant future.

The right wing of the Republicans is terribly dissatisfied with the compromise and continues to declare a vote of no confidence in Speaker McCarthy. However, McCarthy, after accepting the debt ceiling increase, has noticeably strengthened his position, showing that he can get his way with Biden and the Democrats. For the Republican establishment, this is a formal, but still a victory. Now there is an even more interesting issue on the table. The debate over what exactly will be included in the new budget, which will be passed before September, is about to get intense. Republicans are focusing on cutting spending on Biden’s “green” subsidy programs and international aid to other countries. Spears will also be broken over Ukrainian budgets, which for Congress is contingent on the outcome of Kiev’s promised counteroffensive. Republicans have threatened to reduce the size of the tranches if there is a stalemate on the Russia front. Yet looking ahead, the divide in American politics is now so wide that even the routine budget process has caused a sea of problems for the United States. An even tougher confrontation will begin within 10 years, when the U.S. national debt will exceed $50 trillion and up to half of the budget will be spent on servicing it. Then America may face not a hypothetical but a very real default. America survived the current debt crisis with a minor scare. But in the future such crises will occur more and more often, and then it will be much more difficult to keep the situation under control.