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Updated September 18th, 2021 at 00:15 IST

White House warns failure in raising debt limit could lead to recession: Report

White House has reportedly informed states that default caused by the failure of raising the federal debt limit could potentially lead to significant cutbacks.

Reported by: Aanchal Nigam
US debt
IMAGE: AP | Image:self
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The White House has floated its concerns to the states that a default caused by the failure of raising the federal debt limit could potentially lead to significant cutbacks in disaster relief, school funding among other programs and trigger a 'recession'. In a letter obtained by CNN, the White House told state and local governments that if the United States defaults and is unable to pay its obligations, “billions of dollars in state aid and state-run but federal-funded programs could be halted.” As per the report, US President Joe Biden has urged the Republicans to unite with the Democrats in raising the debt ceiling.

However, notably, the GOP leaders have been reluctant. The memo, obtained by the media outlet, came as the Democratic leaders are mulling over adding a debt limit to increase the stopgap funding bill. The final decision regarding the same must come by September 20. On Monday (local time), the House Rules Committee is scheduled to take up the short-term continuing resolution, or CR in a bid to keep the government open after September 30.

If the Democrats successfully add the debt limit to hike to the CR, it will set up a showdown vote just days before the shutdown deadline by the end of this month, considering that Senate Republicans are adamant on blocking it. Even the United States Treasury has said that extraordinary measures to avoid default would run out by October. The memo sent to state and local governments, as per the report, outlines several essential programs that would suffer a blow if Congress fails to increase the debt limit.

These areas include relief efforts, Medicaid and the Children's Health Insurance Program, infrastructure funding, education, public health and child nutrition. Reportedly, the White House, in the memo, warned that "hitting the debt ceiling could cause a recession.” It suggested, “Economic growth would falter, unemployment would rise, and the labour market could lose millions of jobs."

"If the U.S. defaults on its debt -- cities and states could experience a double-whammy: falling revenues and no federal aid as long as Congress refuses to raise or suspend the debt limit. This means critical state services will be at risk for budget cuts, from education to healthcare to pensions," the White House said, as per the report. The memo warned that capital market volatility “could affect state assets” which could impact the state pension payout obligations. 

‘Republicans will not facilitate’

Meanwhile, on September 16, Senate Minority Leader Mitch McConnell warned that Republicans will not be supporting raising the federal borrowing limit and added that Democrats would have to do it on their own. He said, “Let’s be clear: With a Democratic President, a Democratic House, and a Democratic Senate, Democrats have every tool they need to raise the debt limit. It is their sole responsibility. Republicans will not facilitate another reckless, partisan taxing and spending spree.”


National Economic Council director Brian Deese told MSNBC on September 17 that “We have seen this done in a bipartisan way consistently. And the best way to do this 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, you know, there's a lot of posturing on this issue, but we're confident at the end of the day we'll get this done.”

IMAGE: AP

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Published September 18th, 2021 at 00:15 IST

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