The Biden Administration Has Issued a Warning to States That the Federal Debt Crisis Could Lead to a Recession

The Biden administration has issued a warning that the looming federal debt problem might lead to an economic downturn, affecting growth and causing job losses across the country.

“It’s possible that reaching the debt cap may trigger a recession. In a letter to state and local governments dated Sept. 17, the White House warned that economic growth would slow, unemployment would rise, and the labor market may lose millions of jobs.

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The administration claims that Congress needs to raise or suspend the US debt ceiling because the debt problem is threatening the country’s recovery from the CCP (Chinese Communist Party) virus epidemic. Congress missed its deadline to pass the bill in July.

The White House stated, “The United States economy has just begun to recover from the pandemic, and a contrived debt ceiling crisis would jeopardize the progress we’ve made and the future recovery.”

If Congress fails to act, the US will default for the first time in history, and a number of federally supported programs will be halted, according to the White House letter. Medicaid, infrastructure financing, and disaster relief initiatives are all included.

“If the United States defaults on its commitments, the ripple effects will harm cities and states across the country,” the letter continued, adding that a prolonged standoff might cause the S&P 500 to plummet.

The warning comes after Congress authorized trillions of dollars in spending and relief packages in recent months, and Democrats are presently pursuing a $3.5 trillion budget reconciliation plan to fund a variety of new social welfare, environmental, and infrastructure programs. Because trillions of dollars have been pumped into the economy, some have expressed concern that the measures are causing a jump in inflation, which has shaken markets in recent weeks, despite the Federal Reserve’s assertion that the inflation increase is only temporary.

Yellen met with Senate Minority Leader Mitch McConnell (R-Ky.) recently to try to persuade Republican senators to support raising the debt ceiling. However, the GOP leader told reporters that he doesn’t expect any Republicans will vote to raise the debt ceiling.

“I can’t imagine a single Republican voting to lift the debt limit in this environment—this free-for-all on taxes and spending,” McConnell told Punchbowl News.

However, some officials in the Biden administration have expressed optimism that Congress will act in the coming weeks to prevent a catastrophe.

According to Bloomberg News, National Economic Council Director Brian Deese said, “We’ve seen this done in a bipartisan way consistently, and the best way to do it is without a lot of drama, without a lot of self-inflicted harm to the economy and to our country, and that’s what we’re going to do.” “There’s a lot of posturing going on right now on this topic, but we’re optimistic we’ll get it done in the end.”

The entire national debt is currently around $28.7 trillion. The debt ceiling, which restricts the federal government from taking on a fixed amount of national debt for two years, was suspended by Congress in July 2019.

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Margaret Taylor

Experienced communications professional with 10 years of experience in international journalism.

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