The showdown in Washington over raising the U.S. debt ceiling is a classic example of what happens when politics and economics collide, making it a challenging story for business journalists to cover effectively.
Economics would suggest approving an increase in the debt ceiling is a no-brainer: the spending requiring the increase has already been approved, and a failure to do so would result in an “economic catastrophe,” in the words of Treasury Secretary Janet Yellen.
On Wednesday, the House of Representatives passed a bill that would suspend the debt limit while capping spending for non-defense expenditures for two years. While the bill allows for defense spending to increase over the coming two years, it would rescind IRS money, impose new work requirements for SNAP and officially end the moratorium on student loan repayments.
The Fiscal Responsibility Act of 2023 comes after prolonged negotiations between House Republicans and top White House officials, and Senators were working out the logistics of amendment votes on Thursday in order to vote on the bill before the week’s end.
The bill passed the House and Senate just days before the June 5th date, or when the government anticipated it would run out of money to pay its obligations, having exhausted extraordinary measures, triggering a potential default. In the event the U.S. doesn’t have enough money to pay its bills, interest rates could go up even more, recipients of Social Security benefits could lose out, and the market for U.S. Treasury securities could be crushed.
Look ahead by looking back
So how can business journalists meld the political and the economics of debt in their coverage of the national debt, especially now that a bipartisan debt ceiling suspension law is a White House signature away from going into effect? If history is any guide, this issue will come up again.
If we look back at the 2011 debt ceiling crisis, where Congress reached a deal to raise the limit on the national debt just two days before the Treasury was anticipating a default, we can see some similarities, but also some stark differences. It’s important to look to past close-call scenarios when covering debt ceiling negotiations — especially when raising the national debt limit can be used as a quid pro quo for rolling back spending for a variety of government programs.
It is also crucial to look beyond the potential risks that would accompany a default and hone in on how lagging negotiations influence markets for Treasury securities and impact consumers pre-default.
Looking deeply at previous coverage of close-call debt ceiling scenarios and seeing how markets reacted then can give guidance on where to look deeper in current coverage. Reporters can also speak to a wide variety of economists, researchers and political analysts to gain a deeper understanding of why suspending or lifting the debt ceiling is so politically contentious, as well as the many ways a delayed suspension of the debt ceiling will impact the economy.
Tea Party Republicans lucked out in 2011 with passing rollbacks on the national deficit, but a Reuters analysis that placed lawmakers on a scale from most to least conservative found that the current House Freedom Caucus Republicans are even more right-wing than parties past. With Republicans holding a narrow majority in the House, this could give Freedom Caucus members significant sway in controlling negotiations on raising the debt ceiling.
Include the political alongside the economics
In covering the debt ceiling, business journalists should look at the economic and political implications behind stalled negotiations. One central piece of advice from Susan Irving, senior advisor to the Comptroller General and COO of the Government Accountability Office, is to simplify the matter at hand.
When reporting on markets for Treasury securities and broader implications of stalled debt ceiling negotiations, it can be helpful to streamline information for readers. “It depends a little bit on what kind of business reporting it is,” Irving said. “Sometimes it’s sort of straight Q&A. What is it? What isn’t it? Here’s what it means, here’s what it doesn’t mean.”
Irving noted there’s usually push and pull with spending and revenue during debt ceiling negotiations, and staving off a default by lifting the debt ceiling doesn’t necessarily indicate a positive shift in the nation’s fiscal outlook.
“You know, if reporting isn’t accurate, it can be either that the reporters are too rushed or don’t have the time … or it could be that people weren’t willing to explain it,” she said. “I think it’s important that people understand that it’s not simple, we’re in uncharted territory.”
