WASHINGTON (Reuters) – Democrats and Republicans in the U.S. Senate blame each other for failing to move forward so far on a temporary suspension of the $28.4 trillion debt ceiling, in a political game of “chicken” with potentially dire economic consequences.

Without raising the debt limit, the U.S. Treasury is likely to exhaust its borrowing power by October 18th. This raises the risk of defaulting on federal debt.

After a failed Senate https://www.reuters.com/world/us/moment-truth-us-congress-government-funding-debt-biden-agenda-2021-09-27effort to temporarily suspend the debt ceiling and avoid a government shutdown after the federal fiscal year ends on Thursday, Democrats are working on separate measures https://www.reuters.com/world/us/clock-ticking-us-congress-friday-government-shutdown-looms-2021-09-29 to address the borrowing limit and keep federal agencies operating.

Although a funding measure for government would probably have wide bipartisan support in Congress, it is possible that a standalone debt ceiling measure will fail to pass the Senate Republican opposition.

WHOSE SPENDING IS THIS ANYWAY?

The Democratic Senate Majority leader Chuck Schumer, and Republican Leader Mitch McConnell argue about debt. They blame President Joe Biden’s actions or the initiatives taken during President Donald Trump’s term. These include the 2017 tax cuts.

Both parties contributed to the increase in debt over recent years. The tax cuts passed by a Republican-controlled Congress early in Trump’s presidency added about $1.8 trillion to the nation’s debt, according to Moody’s (NYSE:) Analytics. The spending for the COVID-19 pandemic was to be funded by both sides last year. Biden’s Democrats also passed a round of relief for coronavirus worth $1.9 trillion in the early part of this year.

CATASTROPHIC CONSEQUENCES

A grim fate could be in store for the U.S. economy if the impasse leads to default. Without the authority to borrow further, the Treasury may default as it relies on continuing borrowing to pay its interest.

Moody’s Analytics has just released a report warning of an almost 4% drop in economic activity and the loss of approximately 6 million jobs. The unemployment rate is close to 9 percent. Stocks could fall by $15 trillion, which would wipe out household wealth of $13 trillion. Additionally, interest rates will rise on consumer loans, mortgages and other business debts.

McConnell, conscious of these risks, has stated that while McConnell believes the debt ceiling should rise, it is Schumer and Democrats who have to do so. Schumer has accused McConnell political “sophistry” while warning that Republicans may become “party of default” in the event of worse.

A RETURN to 2011?

In 2011, months of partisan brinkmanship over the debt ceiling prompted Standard & Poor’s Corp to downgrade the U.S. government credit rating for the first time in history.

A volatile stock market suffered its worst week since 2008. Investors fled U.S. Treasury bond markets to increase the price of debt. The end result was that Congress agreed to increase the $16 trillion limit on debt hours ahead of the Treasury deadline.

OTHER SUSPENSIONS

The debt ceiling, originally intended to impose fiscal discipline on lawmakers, has been changed by Congress 98 times since the end of World War Two and 17 times since 2001, according to the Congressional Research Service.

The majority of these increases were without drama. However, crisis broke out in 2013 when Republicans tried to lower the ceiling as a way of undermining former President Barack Obama’s Affordable Care Act. Fitch Ratings put the U.S. government under a negative rating.

Bipartisan Budget Bill of 2019 was the most recent to suspend the debt limit. It suspended it until August 1, 2021.