Adnan Zai, Advisor to Berkeley Capital Beachwood, understands the importance of good financial management, and has been watching the debt ceiling negotiations with keen interest. He recently took some time to talk to us about the impending deadline that has Democrats and Republicans scrambling for an agreement.
Kraven: Although this was a busy holiday weekend, President Joe Biden and top congressional Republican Kevin McCarthy were hard at work Saturday evening, trying to move closer to striking a deal in the debt ceiling negotiations. The nation is in an unprecedented position on the issue of a default. If the federal government cannot raise the debt ceiling by June 5th, for the first time ever they will be forced to default on their loans. According to a report by Reuters, they reached a tentative deal to suspend the government’s $31.4T debt ceiling Saturday night, which now has to go to a vote before Congress.
Kraven: What are the ramifications if they fail to meet in the middle?
Adnan Zai: Although each side has been digging their heels in to get what they want out of the deal, for the good of the American people I hope that they will reach an agreement on time. If they do not do this, the United States will not be able to pay their debts. This includes domestic problems like not being able to issue Social Security checks, but it also means that the world economy will be sent into chaos. Veterans and Medicare recipients will also lose out on their payments.
Kraven: Biden called the deal “an important step forward” in a statement, saying: “The agreement represents a compromise, which means not everyone gets what they want. That’s the responsibility of governing.”
Adnan Zai: They are definitely moving closer. As the Associated Press reported, one of the last stumbling blocks that was keeping them from a deal was that the Republicans wanted work requirements for federal food aid recipients. White House spokesman Andrew Bates has called these proposals “cruel and senseless,” noting that the Democrats would oppose them. As the week unfolds, we will see if this sticking point stands in the way of the deal.
Kraven: Republican negotiator Patrick McHenry recently said there was still much dissension between the camps. “Republicans want to cut spending. That’s what we’ve offered with our approach to raising the debt ceiling, with work requirements for able bodied folks to get back in the workforce. Those things are big issues, and there’s no way to sort of gloss that over,” he said. What is your take on the deal they have proposed?
Adnan Zai: If they reach this deal, it will be good for the American people, as they are getting close to a two-year budget-slashing deal that would also extend the US debt limit into 2025, which will take it past the next presidential election. This deal suspends the debt limit through January of 2025 and also caps spending in the 2024 and 2025 budgets. Reports also show it speeds the permit process for some energy projects and deals with some unused COVID funds, in addition to the work requirements for food aid. You can see both sides getting items that they want as the deal moves forward.
Kraven: And if they don’t reach the deal, it could be catastrophic. The work requirements for food aid are a big deal in meeting the agreement. Some believe the Republicans are risking triggering a recession just to add additional work requirements to those in need of food aid. It seems both parties have their own thoughts and even one disagreement can lead to a stalemate in the decision.
Adnan Zai: Yes, it is astounding how one little piece of the puzzle could be such a stumbling block. The Republicans do not want to add any new spending to the agreement. They feel that this will slow the growth of the United States debt. The Democrats, on the other hand, want to increase taxes on the wealthy and companies to shrink the debt in addition to increasing spending on programs like free community college.
Kraven: Additionally, non-defense discretionary spending will be capped at 2023 levels for one year and increased 1% in 2025. McCarthy also said, “It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, rein in government overreach – there are no new taxes, no new government programs.”
Adnan Zai: This is a hit to the Democratic party, who has previously provided such government programs attempting to help the economy survive unprecedented times. But the bottom line is, the debt ceiling must be raised.
Kraven: Treasury secretary Janet Yellen did not mince any words last Friday when she said failing to act by the new date would “cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests”.
Adnan Zai: People are certainly scared, and I can understand their anxiety. Many retirees are already making alternate plans in case their social security checks don’t come. And this is beyond a ripple effect. If the debt ceiling is not raised, it will have a tidal wave effect across the globe.
Kraven: Even though an agreement has been tentatively reached, the vote in the House and the Senate will be precarious. With a 222-213 Republican majority in the House, and a 51-49 Democratic majority in the Senate, the deal must be carefully constructed because they need bipartisan support to pass it.
Adnan Zai: I hope everyone puts their egos aside and votes for the good of the people. History will look back on this moment as a pivotal one for our nation.
Kraven: Yes, and it is the marginalized that will be impacted the most. Thank you for taking the time to chat with us about raising the debt ceiling, Adnan Zai. The American people will know soon enough if their government could reach an agreement.