House Speaker Kevin McCarthy (R-CA) traveled to the New York Stock Exchange Monday to deliver a warning to Wall Street about the debt ceiling crisis.
There is a growing chance Washington “will bumble into the first default in our nation’s history,” the Republican said on his 100th day as House Speaker, adding that he wanted to raise the alarm for the financial world, which has downplayed the issue in recent months.
After a first sit-down meeting in February, McCarthy and President Joe Biden have settled into a standoff over the issue with little communication in the last 75 days with an historically ugly and market-rattling debt limit fight possibly coming within weeks.
In response, the White House called the speech reckless, with Deputy Press Secretary Andrew Bates saying in a statement that McCarthy “is holding the full faith and credit of the United States hostage” without offering a plan that Republicans can agree on.
‘I will never give up’
While the financial markets have watched the debt ceiling saga warily, investors nonetheless still are betting the odds are low of a government default actually happening.
Morgan Stanley Capital International tracks investor sentiment on this front by monitoring trading activity in credit default swaps. The probability of default by this metric was at 11.3% as of Feb. 24, up from 3.3% at the beginning of the year. Nevertheless, it still suggests that investors consider a default as less likely to happen.
During his speech, McCarthy announced that House Republicans will try to pass a bill in the coming weeks to raise the debt limit without input from the White House. The plan is likely to push off the debt limit for one year, implement across-the-board spending limits, and include other GOP priorities like new energy legislation.
But even if McCarthy is able to reach an agreement among his fractious House GOP colleagues, the plan is sure to be rejected by Democrats in the Senate and by the White House.
It also remains unclear how McCarthy will implement these deep cuts without touching politically popular programs like Social Security, the Department of Veterans Affairs, and the Pentagon — areas the Speaker again signaled Monday wouldn’t face serious cutbacks.
“We’ll have to find saving elsewhere,” he said Monday, but again declined to offer details. Experts and Democrats have long charged that McCarthy’s math simply doesn’t add up.
The White House offered its own budget proposal in March and has said it will talk only when McCarthy offers a full plan of his own.
McCarthy nevertheless tried to press the message Monday that the blame lies with the president.
“If there’s one thing I hope America has learned about me in these first 100 days since I was elected Speaker, it’s this: I will never give up,” he said.