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The U.S. Capitol.
The US government is heading toward a shutdown. What does that mean?
The US government looks set to shut down this Sunday after House Republicans indicated that they would not support a bipartisan Senate bill that would fund the federal government past this weekend’s deadline.
Absent a last-minute agreement, many federal agencies could soon shut down, while millions of federal workers could be placed on furlough without pay due to a lapse in funding from Congress, which controls the purse strings.
What led to the current stalemate and what does it mean?
You might recall that, back in June, House Republicans agreed at the eleventh hour to raise the federal debt limit to avoid the government defaulting on its loans for the first time in history. As part of that agreement, Republicans and the White House agreed to spending caps on funding bills for the next two years that aimed to avoid this sort of impasse until after the next presidential election.
But that is now up in the air as a number of “tear-it-all-down” Republicans are refusing to fund the government – an annual procedural measure – and are calling for deeper spending cuts. Crucially, they also oppose ongoing funding to Ukraine.
Meanwhile, House Speaker Kevin McCarthy, overseeing one of the slimmest congressional majorities in decades, is hesitant to pass a funding bill with the backing of House Dems that these vocal members of his own caucus oppose, fearing they would call a vote seeking his ouster. What’s more, to appease the right flank of his party, McCarthy gave his caucus the go-ahead to start an impeachment inquiry into President Biden (the hearing will kick off Friday), but that doesn't seem to have gotten the hardliners to back off.
Indeed, this whole dance makes for very bad politics for the GOP considering that 77% of US voters don’t want the government to close.
What happens if the government shuts down? While some government departments – like the military – will continue to function, hundreds of thousands of workers (out of 4 million government employees) will be told to stay home without pay. The last time the government shut down in 2018 for 35 days, it cost the US economy a whopping $11 billion.
Plus: We asked Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC, to share his view on how long the shutdown may last. Hear what he had to say here.
Biden & McCarthy both win in debt ceiling showdown
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC shares his perspective on US politics.
Who won the debt ceiling showdown between President Biden and House Speaker Kevin McCarthy?
And the answer is everyone's a winner. President Biden, first and foremost, avoided a default, which would have been a terrible consequence for Biden politically and the US and world economy. Very happy that didn't happen. Biden can now spin the modest spending reductions in the bill that increased the debt ceiling as a bipartisan victory, which should potentially help in his reelection campaign as he tries to campaign as a quasi-moderate, which is what brought him to office in 2020 and he put the debt ceiling issue behind us for another two years until at least January of 2025, which is going to be after the next presidential election. And the US is likely to revisit a lot of these fiscal issues once again, using the debt ceiling as a point of leverage to achieve further spending cuts and potentially an extension of the Trump tax cuts that expire in 2026.
For Kevin McCarthy, he wins because he still has his job. Earlier in the year, he had a really tough time achieving the speakership vote, having to go through 15 rounds of votes on the House floor. But it turns out that he's a pretty popular guy among the Republicans, driving forward this deal with very modest spending reductions, despite initially promising very steep reductions, particularly in 2024. They tried to get 9% cuts. They ended up with about 0% cuts, but a 3% increase in defense. And this is a win for Republicans all over the place. There might be some cranky conservatives who don't like this deal and they could potentially threaten McCarthy's speakership later in the year. But for now, it looks like he's doing okay.
He's going to be on thin ice, though, and the fiscal issues are not over for this year because the deal included something called the penny plan, which would cut overall spending by 1% if there's no appropriations bills, which are the annual bills that are legislation that funds the government, passed by January 1st of next year. This will give the conservatives who are in favor of government spending an incentive to block any of these appropriations bills and it's going to mean McCarthy's going to be caught in between the two sides of the Republican conference, the conservatives who want the cuts and the rank-and-file members who want to see increased spending on defense and the appropriators who want to see even bigger increases across the board.
So, McCarthy's not out of the woods just yet, but he's in a pretty good position and a much stronger one than we would have thought in January.
US Sen. John Thune (R-SD) talks to reporters about wrangling over the upcoming vote on debt ceiling legislation to avoid a historic default at the US Capitol in Washington, DC.
On the buzzer, US Senate passes debt ceiling deal
The US Senate on Thursday night passed an eleventh-hour compromise deal to raise the debt ceiling in exchange for spending cuts demanded by Republicans. The bill is now ready to be signed into law by President Joe Biden and prevents the US government from running out of money to pay its bills.
The expediency with which the upper chamber signed off on the House bill without further delay underscored the urgency of avoiding a catastrophic default by June 5. But dozens of Republican fiscal hawks and a smaller number of progressive Dems voted against the legislation, which passed by a 63-36 margin that somewhat mirrored its 314-117 support in the House the day before.
Still, despite all the drama, it all played out as Ian Bremmer expected weeks ago: House Republicans led by Speaker Kevin McCarthy played hardball while the White House refused to give up anything until it was almost too late. Then, both sides reached an agreement with concessions that ruffled activist feathers within their parties. Biden and McCarthy ultimately decided, again, not to fix the problem (America spends more money than the government is allowed to borrow) but rather kick the can down the road until Jan. 2025.
We don't know if the US was closer to disaster this time than it was in 2013, the last time the two parties had a major standoff over the national debt. What we do know is that it was close enough for two political enemies to actually agree on something.
On the one hand, the debt ceiling deal proves that bipartisan consensus is still possible in today's deeply polarized Washington. On the other, the fact that it came just days before the X-date for default signals that perhaps next time it might be too close. And after what happened in 2020, scheduling the deadline right after the 2024 election is no harbinger of good things to come.
Chris Christie interview: The truth about the 2024 GOP primary race
Former New Jersey governor Chris Christie is playing coy on whether he'll throw his hat in the ring for the Republican presidential nomination for 2024, indicating he might simply influence the conversation from afar. In a wide-ranging interview with Ian Bremmer, Christie outlines the stark reality he sees about the GOP primary as things begin to heat up on the campaign trail. "I think there's one lane for the nomination, and right now, Donald Trump's in the front of that lane," Christie tells Bremmer. "And if you want to get in the front of that lane, you better intervene and go right through him because otherwise trying to go around him, I don't think it's a strategy."
Note: This interview was first featured in the GZERO World episode "Republican identity crisis: Chris Christie vs. Donald Trump," published on May 15, 2023.
On the debt celing, he's confident that Republicans and Democrats will avert disaster; on Ron DeSantis, he thinks the Florida Governor has made his Disney-doomed bed and has to sleep in it. He also shares his views on culture war issues, foreign policy, and Russia/Ukraine, where the former Governor's insistence on continued support for Ukraine is decidedly clearer than Trump's.
Stack of US dollar bills with ascending line
Debt ceiling crisis: A default by any other name...
The debt ceiling – dubbed by Ian Bremmer as the dumbest recurring character in US politics – is rearing its ugly head with no end in sight.
Republicans and Democrats have been sparring for weeks, and while House Speaker Kevin McCarthy and President Joe Biden made meaningful progress in recent days, a deal remains elusive. The US government, meanwhile, will breach the so-called “X-date,” when it runs out of money to pay its bills, by late next week. Yet, legislators are fleeing Capitol Hill ahead of the holiday weekend in spite of the threat of the X-date arriving before a deal.
As for timing, Republicans and Democrats don’t share the same level of concern. Jon Lieber, managing director for the United States at Eurasia Group, says there are Republicans who “don’t think going past the deadline is all that bad, and because of that, the pressure on Kevin McCarthy to compromise is minimal.”
Republicans want a long-term deal and are willing to miss the deadline to ensure they get their steep cuts and policy reforms. But Democrats are seriously concerned about the political ramifications of even a partial default. McCarthy knows this, which puts Biden at a disadvantage in negotiations.
Failing to meet the deadline would take the US into a state of debt prioritization, made possible by a GOP-led bill passed last Friday. This approach would prioritize obligations to help the government avoid default, such as paying principal and interest payments, while slowing payments for government workers and social security benefits. So basically, the scary debt collectors will get paid on time, but grandma will have to wait her turn.
Republicans are banking on prioritization to make any breach of the debt ceiling economically survivable until June 16, when the government will get an influx of tax dollars to pay bills for another six weeks.
And beyond that? “Republicans can do this all day. Until payments are being delayed for a significant period of time, Republicans will have all the leverage,” says Lieber.
There is still a strong possibility that a last-minute, short-term deal could be reached early next week, but certain issues are proving intractable. Republicans are demanding new work requirements for Medicaid and food stamp recipients, and a baseline budget for 2024 below that of 2023. The latter is proving to be so contentious that talks have broken down multiple times over it.
Many Democrats are urging Biden to use the 14th Amendment to unilaterally raise the debt limit rather than compromise with Republicans. Their argument is based on a line in the 14th Amendment that says the US debt “shall not be questioned,” which could give the president the constitutional power to make sure the country doesn’t go into default. But Biden doesn’t seem keen on this solution – which would inevitably be challenged by Congress in the courts.
The hard deadline for default is next Friday, June 2, but the US could still face a credit downgrade early next week if it becomes more likely that a deal is not going to be reached. The US was downgraded once before, under the Obama administration in 2011, when it was 72 hours shy of default (which it ended up avoiding). Nevertheless, the downgrade triggered a plummet in the markets and cost the country $1.3 billion in higher borrowing costs.
Instead of learning that even getting close to default is economically problematic, the parties seem to have drawn the wrong lessons from 2011. Democrats learned that it's not worth it to negotiate, and are demanding a clean increase to the debt ceiling without any trade-offs. Meanwhile, Republicans saw that they can leverage the moment to make gains that their party can run on and are relying on debt prioritization to play hardball.
Trouble is, while Republicans may be proud of their nifty solution to the looming deadline, risking prioritization, says Yellen, “is effectively a default by just another name.”
F-16s for Ukraine redefine red line for Putin (again)
Will Biden's reversal to allow F-16s to Ukraine be a game-changer? What is holding up a debt ceiling deal? Will the EU's lawsuit against Meta lead to a data-sharing agreement with the United States? Ian Bremmer shares his insights on global politics this week on World In :60.
Will Biden's reversal to allow F-16s to Ukraine be a game-changer?
Well, Putin says it is. Says that that would absolutely be a line that would be crossed and be irreversible. Of course, he said that about a bunch of things, and his credibility in a response to NATO providing defense to Ukraine has been significantly eroding over the last year. Of course, we also see not just F-16s, but we see Ukrainian armored troop carriers suddenly five miles deep in Russian territory, in Belgorod. The Ukrainians say it wasn't them, but they're very happy to embarrass Putin over that. Look, a lot of things that would've been seen as red lines six months ago now are not. Of course, that's good for the Ukrainians, but it also does mean that the tail risk dangers of this conflict are also going up.
What is holding up a debt ceiling deal?
Political dysfunction in the United States. Massive divisions inside the Democratic and Republican parties. I do think you can get to a deal between Biden and McCarthy, the House Speaker. I don't think that means that McCarthy can get the first deal he gets done through his own caucus. And that not only means there's more negotiation than the time that we presently have allotted, so probably, let's say, a one-month delay looks likely to me, but also, the potential that McCarthy himself has his leadership challenged, which is another problem that you don't need in the middle of this, is rising. So, I'm still quite worried about where this all heads.
Will the EU's lawsuit against Meta lead to a data-sharing agreement with the United States?
I'm not sure that we're there yet. I still see that the Europeans and the Americans are thinking about data from different perspectives. The Europeans are much more willing to support privacy and infringe on what the technology companies have to do, the regulations, in a much less company-friendly way than the Americans, who, of course, have these companies domiciled based in the United States. There is more coordination and talk of data security between the Americans and the Europeans, but I still think we're far from an overall regulatory framework.
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G7 alignment & US political challenges
Ian Bremmer's Quick Take: Hi everybody. Ian Bremmer here and a happy Monday. Quick take to start off your week as President Biden is back in the United States after the G7 Summit in Hiroshima.
What do we think? How did it go? Well, I mean a couple of very different takes. First of all, the G7 is enormously aligned, most particularly on Russia. I have never seen this level of outpouring of support. Every individual member of the G7 engaged personally with Ukrainian President Zelensky, the level of international aid coordination, diplomatic engagement, military support across the board continues to be at exceptionally high levels, not what Putin would've expected, not what the G7 would've expected before the Russian invasion, and that certainly helps to put Zelensky in a stronger position to negotiate with the Russians after a counter offensive over the coming months.
Furthermore, on China, more coordination from the G7, the term of art is de-risking, and everyone is increasingly using that term concerns about Chinese economic coercion. Not that the Chinese are the only country in the world that engages in economic coercion. People have been on the other side of that from the United States, from other G7 economies. But when the G7 gets together and compares notes and sees how the Chinese are willing to use a dominant economic position to engage and lever political pressure on those countries, the G7 realizes they are much better off coordinating their policies than they are by themselves. And you are seeing that.
Now, most of that is the Europeans moving more closely to the United States in concerns about Chinese political security and economic practices. Some of it is the Americans talking less about decoupling and accepting a more proactive continuity of overall G7 China economic relations and interdependence that is important and necessary. But what's significant is that these relations are coordinated and the Chinese see that, and they see that they are not able to drive a bus through divisions between the United States and Canada on one side, Europeans on the other in how China is able to engage politically, and that does matter.
Having said all of that, that sounds like a great G7 for everyone concerned, but of course, a lot of these leaders are quite weak at home, quite unpopular at home, and the big problem is absolutely President Biden who had to cut short a dinner with the heads of state and then had to cancel a trip to Papua New Guinea, doesn't sound all that important, except all of the leaders of the Pacific Island states were coming to PNG in order to meet with Biden. These are countries where the Chinese are dominant economically and the Americans are trying to provide more security relations. Couldn't do that. Canceled on the BRICS summit too, visit to Australia, and to the Prime Minister in his hometown. Kind of embarrassing, at the last minute, he got a phone call, at least from Biden before the announcement. Papua New Guinea only got it afterwards. Well, they're
tiny place, but still doesn't look great.
And why is it happening? Dysfunction in the US political system and everyone gets that the debt limit needs to be resolved. Everyone gets that the Americans have to make good on paying off debts that they have already incurred, and yet Congress and the US president continue to be headlong moving towards crisis. Only 10 days left until June 1st in the so-called X date. According to Janet Yellen, Secretary of Treasury, that is when the debt comes due. And you don't have enough time at this point to get a deal that then can be voted through the House of Representatives without Republicans bolting from McCarthy and undermining his speakership.
So at this point, either there's going to be a short term extension or you're going to hit the X date. One of those two things I think is going to happen. In other words, there is going to be a much bigger crisis, at least sense of crisis before you can resolve this problem and that level of US political dysfunction on display in the G7, on display with the Chinese, on display most everywhere in the world, the biggest challenge to America's strength continues to be at home politically.
That's it for me. I'll talk to you all real soon.
Debt ceiling deal: long way to go in little time
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC shares his perspective on US politics.
Will President Biden get a budget deal with Republican lawmakers?
In what's become an almost annual exercise, the US needs to increase its debt limit once again. With over $31 trillion on the national debt, Congress has to authorize the ability for treasury to borrow any more, and the new Republican majority in the House sees this as an opportunity to try to force President Biden into achieving some long-term budget cuts. The house passed a bill last month that would cut spending by about $4 trillion over the next 10 years. President Biden has proposed a budget that would reduce the deficit by over $3 trillion over the next 10 years through a combination of spending cuts and tax increases. The Republicans have no interest whatsoever in those tax increases, however, so what they're negotiating towards is a package of spending cuts over 10 years that would probably cut budget deficits by somewhere between $1-2 trillion. However, President Biden up until about a week ago said that he was not open to negotiating on the debt limit, and instead wanted to keep the discussions focused around the government's annual appropriations process, which is supposed to take place around September 30th. With the debt limit deadline coming up on or around June 1st, the US could potentially default if lawmakers have not achieved a deal well in advance of that deadline, which we're about two weeks away from right now. Negotiations are just starting to heat up between Speaker Kevin McCarthy's staff and the White House staff. President Biden has canceled part of his trip to Asia in order to come back to the United States to finish these negotiations. And this very well could come down to the wire, which is making markets very nervous about the fact that the US may not be able to make payments to certain people starting sometime in early June.
The two sides right now are very far apart and Democrats in Congress are extremely worried that Biden's going to agree to something they don't want to do, including new work requirements to social benefit programs like SNAP benefits or Medicaid. And Republicans have a whole other list of accomplishments they'd like to see get done, like building a new border wall or doing something about a migrant crisis on the southern border. So while the two sides look very far apart right now, one thing that most of them agree on is that the US can never default. And the real risk here is that you have some Republicans who fundamentally don't believe that going past what's called the X date where the US spends down all its cash balances and can't borrow anymore would lead to a default because the administration has the ability to prioritize payments to some claimants and not others.
This is a very risky scheme, however, that's never been tested. Treasury Secretary Janet Yellen does not want to test it, doesn't want to be the first Treasury Secretary to have to test it, and so a deal is probably going to come together before the X date. What that deal looks like, though, we have a long way to go before we find out.
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