InstaForex

October 7, 2021

Debates in Congress over US debt limit not over

 For the last few weeks, traders have been closely monitoring the Fed's comments and actions. However, while market participants were trying to figure out the timing of the QE taper, October crept. Notably, earlier, Janet Yellen warned of a possible October default on US debt. The nation would be close to exhausting its federal borrowing capabilities if the debt ceiling was not raised. The October 18 deadline is approaching. The government is likely to run out of funding, which increases the risk of a technical default. If so, the US economy may plunge into a recession. However, Janet Yellen warned US policymakers about it a few months ago. Congress and the Senate still do not reach a consensus and even now lawmakers cannot come to a mutual opinion. Thus, the situation is quite serious. They have to raise the debt ceiling or they will face a technical default. Republicans or Democrats are sure to spoil their reputation if it happens. If they do nothing and the country defaults on US debt, it will deliver a severe blow to the country, its status, and trust in it. Thus, it seems that Republicans are just playing political games with Democrats. They are well aware that the appropriate decision will be made anyway even without their support.


Republicans understand that the Democratic majority and Kamala Harris could make the decision to increase the debt limit at any moment. The House of Representatives has already voted in favor of raising the debt ceiling. However, Republicans are reluctant to vote as the bill is written by Democrats. There is no need to say that both parties have a rather different view on what should be done in the country. Thus, Republicans are likely to vote for raising the debt limit only if Democrats make certain concessions and take into account the demands of Republicans. Democrats may simply refuse as they have 50 votes in the Senate and the vote of Kamala Harris will be decisive. This is why it is just a political game to make some adjustments to the bill. If Republicans do not support raising the debt limit, then they will be able to openly declare that this decision was not bipartisan. Simply put, they bear no responsibility for it. They will also have a great opportunity to criticize Democrats and Joe Biden personally in the future for the huge public debt and for the ever-increasing national debt. Besides, they are sure to lash out at Democrats for the fact that the Democrats are not doing anything to reduce borrowing and the size of the debt. It may come in handy before the next election.