National Debt (US)

More stories

  • 163 Shares119 Views

    in Economy

    Why Hitting the Debt Ceiling Would Be Very Bad for the U.S. Economy

    by

    If Congress fails to increase the government’s borrowing limit in time, the result would be a shock to the economy and financial markets.WASHINGTON — The new Republican majority in the House of Representatives has Washington and Wall Street bracing for a revival of brinkmanship over the nation’s statutory debt limit, raising fears that the fragile U.S. economy could be rattled by a calamitous self-inflicted wound.For years, Republicans have sought to tie spending cuts or other concessions from Democrats to their votes to lift the borrowing cap, even if it means eroding the world’s faith that the United States will always pay its bills. Now, back in control of a chamber of Congress, Republicans are poised once again to leverage the debt limit to make fiscal demands of President Biden.The fight over the debt limit is renewing debates about what the actual consequences would be if the United States were unable to borrow money to pay its bills, including what it owes to the bondholders who own U.S. Treasury debt and essentially provide a line of credit to the government.Some Republicans argue that the ramifications of breaching the debt limit and defaulting are overblown. Democrats and the White House — along with a variety of economists and forecasters — warn of dire scenarios that include a shutdown of basic government functions, a hobbled public health system and a deep and painful financial crisis.Speaker Kevin McCarthy signaled this week that he and his fellow Republicans would seek to use the debt limit standoff to enact spending cuts and reduce the national debt. He said that lawmakers likely have until summertime to find a solution before the United States runs out of cash, a threshold that is known as “X-date.”“One of the greatest threats we have to this nation is our debt,” Mr. McCarthy said on Fox News on Tuesday evening, adding, “We don’t want to just have this runaway spending.”Speaker Kevin McCarthy signaled this week that he and his fellow Republicans will seek to use the debt limit standoff to enact spending cuts and reduce the national debt.Kenny Holston/The New York TimesMr. Biden has repeatedly said he will refuse to negotiate over the debt limit, and that Congress must vote to raise it with no strings attached.That has introduced the very real likelihood of a debt limit breach. “Fiscal deadlines will pose a greater risk this year than they have for a decade,” Goldman Sachs economists wrote in a note.Here’s a look at what the debt limit is and why it matters.What is the debt limit?The debt limit is a cap on the total amount of money that the federal government is authorized to borrow to fulfill its financial obligations. Because the United States runs budget deficits — meaning it spends more than it brings in through taxes and other revenue — it must borrow huge sums of money to pay its bills. That includes funding for social safety net programs, interest on the national debt and salaries for troops. While the debt ceiling debate often elicits calls by lawmakers to cut back on government spending, lifting the debt limit does not authorize any new spending and in fact simply allows the United States to finance existing obligations. In other words, it allows the government to pay the bills it has already incurred.Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More

  • 100 Shares119 Views

    in Economy

    Speaker Drama Raises New Fears on Debt Limit

    by

    An emboldened conservative flank and concessions made to win votes could lead to a protracted standoff on critical fiscal issues, risking economic pain.WASHINGTON — Representative Kevin McCarthy of California finally secured the House speakership in a dramatic middle-of-the-night vote early Saturday, but the deal he struck to win over holdout Republicans also raised the risks of persistent political gridlock that could destabilize the American financial system.Economists, Wall Street analysts and political observers are warning that the concessions he made to fiscal conservatives could make it very difficult for Mr. McCarthy to muster the votes to raise the debt limit. That could prevent Congress from doing the basic tasks of keeping the government open, paying the country’s bills and avoiding default on America’s trillions of dollars in debt.The speakership battle suggests President Biden and Congress could be on track later this year for the most perilous debt-limit debate since 2011, when former President Barack Obama and a new Republican majority in the House nearly defaulted on the nation’s debt before cutting an 11th-hour deal.“If everything we’re seeing is a symptom of a totally splintered House Republican conference that is going to be unable to come together with 218 votes on virtually any issue, it tells you that the odds of getting to the 11th hour or the last minute or whatever are very high,” Alec Phillips, the chief political economist for Goldman Sachs Research, said in an interview Friday.Representative Kevin McCarthy won the speakership early Saturday only after making a deal with hard-right lawmakers.Kenny Holston/The New York TimesThe federal government spends far more money each year than it receives in revenues, producing a budget deficit that is projected to average in excess of $1 trillion a year for the next decade. Those deficits will add to a national debt that topped $31 trillion last year.Federal law puts a limit on how much the government can borrow. But it does not require the government to balance its budget. That means lawmakers must periodically pass laws to raise the borrowing limit to avoid a situation in which the government is unable to pay all of its bills, jeopardizing payments including military salaries, Social Security benefits and debts to holders of government bonds. Goldman Sachs researchers estimate Congress will likely need to raise the debt limit sometime around August to stave off such a scenario.Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More

  • 113 Shares159 Views

    in Economy

    US National Debt Tops $31 Trillion for First Time

    by

    America’s borrowing binge has long been viewed as sustainable because of historically low interest rates. But as rates rise, the nation’s fiscal woes are getting worse.WASHINGTON — America’s gross national debt exceeded $31 trillion for the first time on Tuesday, a grim financial milestone that arrived just as the nation’s long-term fiscal picture has darkened amid rising interest rates.The breach of the threshold, which was revealed in a Treasury Department report, comes at an inopportune moment, as historically low interest rates are being replaced with higher borrowing costs as the Federal Reserve tries to combat rapid inflation. While record levels of government borrowing to fight the pandemic and finance tax cuts were once seen by some policymakers as affordable, those higher rates are making America’s debts more costly over time.“So many of the concerns we’ve had about our growing debt path are starting to show themselves as we both grow our debt and grow our rates of interest,” said Michael A. Peterson, the chief executive officer of the Peter G. Peterson Foundation, which promotes deficit reduction. “Too many people were complacent about our debt path in part because rates were so low.”The new figures come at a volatile economic moment, with investors veering between fears of a global recession and optimism that one may be avoided. On Tuesday, markets rallied close to 3 percent, extending gains from Monday and putting Wall Street on a more positive path after a brutal September. The rally stemmed in part from a government report that showed signs of some slowing in the labor market. Investors took that as a signal that the Fed’s interest rate increases, which have raised borrowing costs for companies, may soon begin to slow.Higher rates could add an additional $1 trillion to what the federal government spends on interest payments this decade, according to Peterson Foundation estimates. That is on top of the record $8.1 trillion in debt costs that the Congressional Budget Office projected in May. Expenditures on interest could exceed what the United States spends on national defense by 2029, if interest rates on public debt rise to be just one percentage point higher than what the C.B.O. estimated over the next few years.The Fed, which slashed rates to near zero during the pandemic, has since begun raising them to try to tame the most rapid inflation in 40 years. Rates are now set in a range between 3 and 3.25 percent, and the central bank’s most recent projections saw them climbing to 4.6 percent by the end of next year — up from 3.8 percent in an earlier forecast.Federal debt is not like a 30-year mortgage that is paid off at a fixed interest rate. The government is constantly issuing new debt, which effectively means its borrowing costs rise and fall along with interest rates.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • 125 Shares119 Views

    in Economy

    Biden’s Student Loan Plan Sets Off Fierce Debate Among Economists

    by

    Liberals and more moderate Democrats are arguing over the impact on inflation, the federal budget deficit and high earners.WASHINGTON — President Biden’s plan to forgive some student debt has sharply divided liberal economists and pitted the White House economic team against both independent analysts and veterans of past Democratic administrations.The areas of disagreement include how much the package of debt relief and other changes to student loans will cost taxpayers and whether the plan is “paid for” in budgetary terms. The plan’s impact on inflation, which is rising at a rapid clip, and the degree to which it will help those most in need are also matters of contention.The plan, announced last week, includes forgiving up to $10,000 in loans for individuals earning $125,000 or less and an additional $10,000 for borrowers from low-income backgrounds who received Pell Grants in college. Mr. Biden also proposed changes to loan repayment plans going forward that will reduce monthly costs and eliminate interest accumulation for potentially millions of lower-earning borrowers who maintain payments.White House officials have offered partial estimates of who will benefit most from those moves, and how much they might reduce federal revenue. The officials have made a case for why the package will not add to inflation. And they have claimed it will be “paid for,” though not in any way that budget experts agree fits that term.Conservative economists have attacked the plan, claiming it would stoke higher inflation and burden taxpayers with hundreds of billions of dollars in new debt. Some liberal economists have defended it as a lifeline for graduates who have been harmed by the soaring costs of higher education.What to Know About Student Loan Debt ReliefCard 1 of 5What to Know About Student Loan Debt ReliefMany will benefit. More

  • 113 Shares179 Views

    in Economy

    Analysis Deems Biden’s Climate and Tax Bill Fiscally Responsible

    by

    Despite Republican claims, the new legislation would be only a modest corporate tax increase, Congress’s Joint Committee on Taxation found.After more than a year of trying — and failing — to pack much of President Biden’s domestic agenda into a single tax-and-spend bill, Democrats appear to have finally found a winning combination. They’ve scrapped most of the president’s plans, dialed down the cost and focused on climate change, health care and a lower budget deficit.As soon as party leaders announced that new bill last week, Republicans began attacking it in familiar terms. They called it a giant tax increase and a foolish expansion of government spending, which they alleged would hurt an economy reeling from rapid inflation.But outside estimates suggest the bill would not cement a giant tax increase or result in profligate federal spending.An analysis by the Joint Committee on Taxation, a congressional nonpartisan scorekeeper for tax legislation, suggests that the bill would raise about $70 billion over 10 years. But the increase would be front-loaded: By 2027, the bill would actually amount to a net tax cut each year, as new credits and other incentives for low-emission energy sources outweighed a new minimum tax on some large corporations.That analysis, along with a broader estimate of the bill’s provisions from the nonpartisan Committee for a Responsible Federal Budget, suggests that the legislation, if passed, would only modestly add to federal spending over the next 10 years. By the end of the decade, the bill would be reducing federal spending, compared with what is scheduled to happen if it does not become law.And because the bill also includes measures to empower the Internal Revenue Service to crack down on corporations and high-earning individuals who evade taxes, it is projected to reduce the federal budget deficit over a decade by about $300 billion.Adding up the headline cost for what Democrats are calling the Inflation Reduction Act is more complicated than it was for many previous tax or spending measures that lawmakers approved. The bill blends tax increases and tax credits, just as Republicans did when they passed President Donald J. Trump’s signature tax package in 2017. But it also includes a spending increase meant to boost tax revenues and a spending cut meant to put more money in consumers’ pockets.Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, said the composition of the deal was vastly different from a larger bill that Democrats failed to push through the Senate in the fall. It included several spending programs that were set to expire after a few years, and budget hawks warned that the overall package would add heavily to federal debt if those programs were eventually made permanent, as Washington has been known to do, without offsetting tax increases.Ms. MacGuineas called the original idea, known as Build Back Better, “a massive gimmicky budget buster.” She had kinder words for the new package, saying it “manages to push against inflation, reduce the deficit, and, once fully phased in, it would actually cut net spending, without raising net taxes.”“That is a pretty monumental improvement,” she added.The bill springs from an agreement between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a key centrist Democrat. President Biden blessed it last week, and it carries what remains of what was once his $4 trillion domestic agenda.Understand What Happened to Biden’s Domestic AgendaCard 1 of 7‘Build Back Better.’ More

  • 113 Shares119 Views

    in Economy

    U.S. National Debt Tops $30 Trillion as Borrowing Surged

    by

    The record red ink, fueled by spending to combat the coronavirus, comes as interest rates are expected to rise, which could add to America’s costs.WASHINGTON — America’s gross national debt topped $30 trillion for the first time on Tuesday, an ominous fiscal milestone that underscores the fragile nature of the country’s long-term economic health as it grapples with soaring prices and the prospect of higher interest rates.The breach of that threshold, which was revealed in new Treasury Department figures, arrived years earlier than previously projected as a result of trillions in federal spending that the United States has deployed to combat the pandemic. That $5 trillion, which funded expanded jobless benefits, financial support for small businesses and stimulus payments, was financed with borrowed money.The borrowing binge, which many economists viewed as necessary to help the United States recover from the pandemic, has left the nation with a debt burden so large that the government would need to spend an amount larger than America’s entire annual economy in order to pay it off.Some economists contend that the nation’s large debt load is not unhealthy given that the economy is growing, interest rates are low and investors are still willing to buy U.S. Treasury securities, which gives them safe assets to help manage their financial risk. Those securities allow the government to borrow money relatively cheaply and use it to invest in the economy.For years, presidents have promised to limit federal borrowing and bring down the nation’s budget deficit, which is the gap between what the nation spends and what it takes in. Under President Bill Clinton, the United States actually ran a budget surplus between 1998 and 2001.But taming deficits had fallen out of fashion in recent years, including during the Trump administration, when lawmakers blew through budget caps and borrowed money to fund tax cuts and other federal spending.Now, deficit concerns have resurfaced, helping to stall negotiations over President Biden’s $2 trillion safety net and climate spending proposal. Senator Joe Manchin III of West Virginia, a Democrat whose vote is key to passing Mr. Biden’s package, cited “staggering debt” as a reason he could not support the legislation.Senator Joe Manchin on Capitol Hill last month.Tom Brenner for The New York TimesThe lingering pandemic has slowed the momentum of the economic recovery, fueling inflation rates unseen since the early 1980s and raising the prospect of higher interest rates, which could add to America’s fiscal burden.“Hitting the $30 trillion mark is clearly an important milestone in our dangerous fiscal trajectory,” said Michael A. Peterson, the chief executive officer of the Peter G. Peterson Foundation, which promotes deficit reduction. “For many years before Covid, America had an unsustainable structural fiscal path because the programs we’ve designed are not sufficiently funded by the revenue we take in.”Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.The gross national debt represents debt held by the public, such as individuals, businesses and pension funds, as well as liabilities that one part of the federal government owes to another part.Renewed concerns about debt and deficits in Washington follow years of disregard for the consequences of big spending. During the Trump administration, most Republicans ceased to be fiscal hawks and voted along party lines in 2017 to pass a $1.5 trillion tax cut along with increased federal spending.While Republican lawmakers helped run up the nation’s debt load, they have since blamed Mr. Biden for putting the nation on a rocky fiscal path by funding his agenda. After a protracted standoff in which Republicans refused to raise America’s borrowing cap, threatening a first-ever federal default, Congress finally agreed in December to raise the nation’s debt limit to about $31.4 trillion.In January 2020, before the pandemic spread across the United States, the Congressional Budget Office projected that the gross national debt would reach $30 trillion by around the end of 2025. The total debt held by the public outpaced the size of the American economy last year, a decade faster than forecasters projected.The nonpartisan office warned last year that rising interest costs and growing health spending as the population ages would increase the risk of a “fiscal crisis” and higher inflation, a situation that could undermine confidence in the U.S. dollar.The Biden administration has said the $1.9 trillion pandemic relief package the Democrats passed last year was a necessary measure to protect the economy from further damage. Treasury Secretary Janet L. Yellen has argued that such large federal investments are affordable because interest costs as a share of gross domestic product are at historically low levels thanks to persistently low interest rates.But that backdrop could start to change as the Federal Reserve prepares to raise interest rates, which have been set near-zero since the start of the pandemic, to curb inflation.The Fed indicated last week that it was on track to begin increasing rates at its next meeting in March. Investors are predicting the central bank could usher in five rate increases this year, bringing rates to a range of 1 to 1.25 percent.Trillions in federal spending has left the United States approaching levels of red ink not seen since World War II.Sarah Silbiger/ReutersThe Fed has also been keeping long-term interest rates low by buying government-backed debt and holding those securities on its balance sheet. Those purchases are set to wrap up next month, and last week, the Fed signaled it planned to “significantly” shrink its bond holdings.Esther L. George, the president of the Federal Reserve Bank of Kansas City, suggested during a speech this week that the Fed’s big bond holdings might be lowering longer-term interest rates by as much as 1.5 percentage points — nearly cutting the interest rate on 10-year government debt in half. While shrinking the balance sheet risks roiling markets, she warned that if the Fed remained a big presence in the Treasury market, it could distort financial conditions and imperil the central bank’s prized independence from elected government.Inflation F.A.Q.Card 1 of 6What is inflation? More

  • 125 Shares99 Views

    in Economy

    Inflation and Deficits Don’t Dim the Appeal of U.S. Bonds

    by

    Markets have been in upheaval. The Federal Reserve is taking steps to cool off the economy, as questions loom about the course of the recovery. And headlines are proclaiming that government bond yields are near two-year highs.But the striking thing about bonds isn’t that yields — which influence interest rates throughout the economy — have risen. It’s that they remain so low.In the past year, with consumer prices rising at a pace unseen since the early 1980s, a conventional presumption was that the demand for bonds would slump unless their yields were high enough to substantially offset inflation’s bite on investors’ portfolios.Bond purchases remained near record levels anyway, which pushed yields lower. The yield on the 10-year Treasury note — the key security in the $22 trillion market for U.S. government bonds — is about 1.8 percent. That’s roughly where it was on the eve of the pandemic, or when Donald J. Trump was elected president, or even a decade ago, when inflation was running at a mere 1.7 percent annual rate — compared with the 7 percent year-over-year increase in the Consumer Price Index recorded in December.If you had run that data past market experts last spring, “I think you would have been hard-pressed to find anybody on the Street who’d believe you,” said Scott Pavlak, a fixed-income portfolio manager at MetLife Investment Management.Because the 10-year Treasury yield is a benchmark for many other interest rates, the rates on mortgages and corporate debt have been near historical lows as well. And despite a binge of deficit spending by the U.S. government — which standard theories say should make a nation’s borrowing more expensive — continuing demand for government debt securities has meant that investors are, in inflation-adjusted terms, paying to hold Treasury bonds rather than getting a positive return.The major reasons for this odd phenomenon include long-term expectations about inflation, a large (and unequally distributed) surge in wealth worldwide and the growing ranks of retiring baby boomers who want to protect their nest eggs against the volatility of stocks.And that has potentially huge consequences for public finances.“If governments ever wanted to engage in an aggressive program of spending, now is the time,” said Padhraic Garvey, a head of research at ING, a global bank. “This is a perfect time to issue bonds as long as possible and proceed with long-term investment plans — and as long as the rate of return on those plans is in excess of the funding costs, they pay for themselves.”Weighing the Fed’s RoleBecause the government debt issued by the United States is valued, with few exceptions, as the safest financial asset in the global market — and because this debt is used as the collateral for trillions of dollars of systemically important transactions — the monthly and weekly fluctuations of key U.S. Treasuries, like the 10-year note, are watched closely.There are rancorous debates about the added role that the emergency bond-buying program conducted by the Fed since March 2020 — which included hundreds of billions of dollars in U.S. debt securities — has played in keeping rates down. Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.Some of the central bank’s critics concede that the Fed’s aggressive measures (which officials are dialing back) may have proved necessary at the start of the pandemic to stabilize markets. But they insist its program, another form of economic stimulus, continued far too long, egging on inflation by increasing demand and keeping rates low — an equation that hurt savers who could benefit from higher returns to hedge against the price increases.Still, most mainstream analysts also tend to identify a broader gumbo of coalescing factors beyond monetary policy.Several major market participants attribute these stubbornly low yields in spite of a high-growth, high-inflation economy to a widening sense among investors that a time of slower growth and milder price increases may eventually reassert itself.“While inflation has surged, they do not expect it to be persistent,” said Brett Ryan, the senior U.S. economist at Deutsche Bank. “In other words, over the long run, the post-pandemic world is likely to look very similar to the prepandemic state of the economy.”Long-run inflation expectations are still relatively anchored at an annual rate of about 2.4 percent over the next 10 years. This indicates that markets think the Fed will prevent inflation from spiraling upward, despite the huge increase in debt and the supply of dollars.Lots of Cash in Search of HavensOne potent element driving down rates is that from 2000 to 2020 — a stretch that included a burst dot-com bubble, a breakdown of the world’s banking system and a pandemic that upended business activity — global wealth in terms of net worth more than tripled to $510 trillion. The resulting savings glut has deeply affected the market, particularly for government bonds.The vast majority of wealth has accumulated to borderless corporations and a multinational elite desperate to park that capital somewhere that is safe and allows its money to earn some level of interest, rather than lose value even more quickly as cash. They view lending the money to a national government in its own currency as a prudent investment because, at worst, the debt can be repaid by creating more of that currency.The downside for these investors is that only so many stable, powerful countries have this privilege: This mix of exorbitant levels of wealth and a scarcity of safe havens for it has whetted, at least for now, a deepening appetite for reliable government debt securities — especially U.S. Treasuries.“To have truly risk-free returns and storage of your dollars, where else are you going to put them?” asked Daniel Alpert, a managing partner of the investment bank Westwood Capital.As the principle of supply and demand would suggest, the combination of high demand and low supply has helped keep Treasury bond prices high, which in turn produces lower yields.Demographic changes are affecting bond trends, too. As they approach or reach retirement, hundreds of millions of people across developed economies are looking for safer places than the stock market for their assets.Even in an inflationary environment, “there’s just this huge demand for yield in fixed income from people,” said Ben Carlson, the director of institutional asset management at Ritholtz Wealth Management. “You have all these boomer retirees who have money in the stock market and they’re doing great, but they know soon they’re not going to have a paycheck anymore and they need some portion of their portfolio to provide yield and stability.”Running Room for Federal SpendingThe U.S. Treasury market has grown to roughly $23 trillion, from $3 trillion two decades ago — directly in step with the national debt, which has grown to over 120 percent of gross domestic product, from 55 percent.But borrowing costs for the American government have trended lower, not higher. Congress issued roughly $5 trillion in Treasury debt securities to finance pandemic fiscal relief, “and we had, effectively, zero cost of capital for most of it,” said Yesha Yadav, a law professor at Vanderbilt University whose scholarship covers the Treasury market’s structure and regulations.Since the 1980s, the federal debt has skyrocketed.Total public debt as a percentage of gross domestic product

    Note: Data through the third quarter of 2021Source: Federal Reserve Board of St. LouisBy The New York TimesBut the cost of paying investors back is at its lowest in years.Interest payments on U.S. debt as a percentage of gross domestic product.

    Note: Data through 2020. Federal interest payments are still projected to be low in 2022.Source: Federal Reserve Economic DataBy The New York TimesThe cost of the interest payments that the U.S. government owes on its debt peaked in 1991 at 3.2 percent of gross domestic product, when the national debt was only 44 percent of G.D.P. By that measure, interest costs now are about half what they were back then.Inflation F.A.Q.Card 1 of 6What is inflation? More

  • 113 Shares149 Views

    in Economy

    Debt Ceiling Window Is Narrowing, Bipartisan Policy Center Warns

    by

    The United States faces a default sometime between Dec. 21 and Jan. 28 if Congress does not act to raise or suspend the debt ceiling, a Washington think tank warned on Friday.The projection from the think tank, the Bipartisan Policy Center, was a narrower window than it provided last month, and the nonpartisan group suggested that the actual deadline, or X-date, could be toward the earlier end of that range.Democrats and Republicans appear to have tempered their tone around raising the debt limit this time around. While lawmakers have not settled on a path to lifting the borrowing cap, they are exploring a series of ways to raise it, including some that could ultimately hand more power to the White House to avoid the kind of standoffs that have routinely crippled Washington.Republicans continue to publicly insist that Democrats must act alone to address the issue, while Democrats have countered that raising the borrowing cap is a shared responsibility given that both political parties have incurred big debts over the last several years.“Those who believe the debt limit can safely be pushed to the back of the December legislative pileup are misinformed,” said Shai Akabas, the director of economic policy at the Bipartisan Policy Center. “Congress would be flirting with financial disaster if it leaves for the holiday recess without addressing the debt limit.”Treasury Secretary Janet L. Yellen warned lawmakers in November that the United States could be unable to pay its bills soon after Dec. 15. During testimony before the Senate Banking Committee this week, she underscored the urgency of the matter.“I cannot overstate how critical it is that Congress address this issue,” Ms. Yellen said. “America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery.”In September, Ms. Yellen called for the debt limit to be eliminated, explaining that it had become a destructive policy that posed unnecessary risks to the economy. After approaching the first default in American history, Congress in October raised the statutory debt limit by $480 billion, an amount the Treasury Department estimated would allow the government to continue borrowing through early December.Congressional leaders have been quietly discussing ways to address the debt ceiling, after Republicans warned that they would not help Democrats clear the 60-vote threshold needed to break a Republican filibuster against legislation to raise the borrowing cap.Senators Chuck Schumer of New York, the majority leader, and Mitch McConnell of Kentucky, the minority leader, have spoken repeatedly in recent weeks about the issue, but they have remained tight-lipped in public about a possible solution.The debate has been further complicated by former President Donald J. Trump and his continued influence over the Republican Party. He has repeatedly railed at Mr. McConnell and the other Republican senators who backed a procedural vote in October that cleared the way for Democrats to raise the debt limit.But Mr. McConnell, while pushing for Democrats to raise the borrowing cap without help from his conference, pledged this week that a default would be avoided.Senators Chuck Schumer of New York, second from left, and Mitch McConnell of Kentucky, center, have spoken repeatedly in recent weeks about the debt ceiling.Al Drago for The New York Times“Let me assure everyone the government will not default, as it never has,” Mr. McConnell said on Tuesday. Pressed further, he added, “We’re having useful discussions about the way forward.”Cut out of both the $1.9 trillion coronavirus relief package that passed in March and the $2.2 trillion climate, tax and spending plan that Democrats are trying to push through the Senate, Republicans have refused to help Democrats accommodate debt incurred by both parties. They have taken that position even though leaders of both parties signed off on the spending that helped the debt balloon.Democrats, in turn, have balked at a Republican demand to use a fast-track process known as budget reconciliation to raise the debt limit without Republican votes. Democrats used the process to pass the coronavirus relief package and they are using it again for the climate, tax and spending plan, but they have argued that Republicans should help keep the government from defaulting.Understand the U.S. Debt CeilingCard 1 of 6What is the debt ceiling? More