Democratic President Joe Biden and Republican House Majority Leader Kevin McCarthy got the approval last week from both Houses of Congress for their proposal to suspend the debt ceiling and avert a disastrous situation of the United States officially defaulting on its debt payments.

Signing the agreement into law and emphasizing the bipartisan “compromise and consensus,” Biden said, “No one got everything they wanted but the American people got what they needed.” Undoubtedly, the failure of Congress to reach an agreement to suspend the debt ceiling would have had catastrophic consequences. However, this fact should obscure neither the anti-worker and anti-poor nature of this bill, nor the deeper consequential realities of the decades-long selling out of tens of millions of American working people by both the Democrats and Republicans. 

In their compromise, the two corporate parties have agreed on cuts that will hurt millions of working people, and particularly the poorest and most vulnerable. This is no surprise, because the strongest bipartisan agreement between the two parties has long been around the idea that working people should shoulder the burden of every crisis instead of the wealthy elite. And although the debt ceiling agreement prevents an immediate catastrophe, a recession still looms on the horizon, and the long-term malaise of global capitalism continues unabated, as does the price it is extracting from the masses.

No, Working People Have Not “Got What They Needed”

With the two-year suspension of the debt ceiling, Biden and the Congressional Democrats and Republicans have used the debt ceiling debacle to carry out  vicious attacks on working people.

The bill itself is deeply regressive. It limits all discretionary spending to 1% growth in 2025, which is effectively a huge cut to funding for social services because of the current and anticipated rate of inflation. 

The debt ceiling bill also puts an end to the moratorium on student loan repayments by the end of August. Democrats are touting as some sort of victory that they stopped the Republican attempt to repeal Biden’s forgiveness program that would eliminate up to $20,000 of student debt (adding up to $400 billion total). But the conservative Supreme Court is expected to rule against the program by the end of this month, so this is only adding a further big blow for the millions in debt.

As another example of how bipartisan agreements in Washington DC often bode ill for ordinary Americans, the legislation outrageously imposes new work requirements on older Americans who receive food stamps through the Supplemental Nutrition Assistance Program (SNAP) and aid from the Temporary Assistance for Needy Families (TANF) Program. Even before these new restrictions take effect, working families and people on fixed incomes had already begun facing the combined hit of the skyrocketing food prices and the end of the boosted COVID-era payments. Families that had previously received about $200/month are reduced to a shocking $16/month. And TANF itself is the meager replacement for the Aid to Families With Dependent Children (AFDC), which was a program won by the labor movement under the New Deal. It was Democratic President Bill Clinton who shamefully ended AFDC, fulfilling his brutal neoliberal pledge to “end welfare as we know it.”

The bill also snatches away about $30 billion from COVID-era funds meant for urgently repairing highway infrastructure, disaster loans, and rural broadband expansion.

Biden also made a dirty concession to Senator Joe Manchin, greenlighting Manchin’s pet project, a 300-mile-long pipeline that will transport natural gas from West Virginia to Virginia, across waterways and forest lands. Even before the debt deal, the Biden administration had signed off on several federal permits the pipeline project needed.

Consistent with their ineffective track record so far, the “Squad” and the self-described progressive Democrats did little to fight these substantial giveaways at the expense of tens of millions of working families. The “Squad” and many progressive Democrats voted against the House bill. But it was only in the context of the bill being assured sufficient votes to pass. In unconcealed loyalty to Biden and the ruling elite, California Congressmember Ro Khanna made it crystal clear that while he and other progressives were voting no, it was utterly symbolic, that he had “full confidence that the deal will pass,” and assured Biden that “if they need our vote, we’ll be there.” 

Biden and the Democrats portray the debt limit deal as a pushback against the “Make America Great Again” (MAGA) and extreme right-wing Republicans. In reality, the MAGA Republicans were forced to concede on the deal because they understood that they would pay a colossal political price if they actually obstructed a debt deal and sent the economy careening into a recession. But they are not damaged by the outcome, and they and Donald Trump will continue to make gains in the vacuum created by the severe unpopularity of the political establishment, the refusal of the “Squad” to stand up against the Democratic powerbrokers, and absence of leadership from the left. 

Playing With An Economic Time Bomb

Biden and other Democratic Party politicians blame the Republicans for the impasse and the massive cuts that were part of the deal. It is certainly stunning to see the blatant manner in which Republicans and the right wing were willing to go after the public support for the poorest Americans, which were hard-won by the labor movement and have already been cut to the bone after decades of bipartisan attacks. But Biden and the Democrats could have raised or removed the debt limit when they had majorities in both Houses last December. In November last year, Biden’s Treasury Secretary Janet Yellen herself openly called on the Democrats to do it in order to avoid a “devastating economic self-inflicted blow” that would have “irreparable consequences.” Most importantly, Democrats made no attempt to use their majorities last year to repeal Donald Trump’s tax cuts for the richest Americans, let alone substantially increase taxes on Wall Street and the wealthy to prevent cuts to, and expand funds for, vital services. The wealthiest 1% of Americans became $6.5 trillion richer by the end of last year.

The numbers leading up to the agreement reveal the economic time bomb that the Republicans and Democrats threatened to explode. The nation’s gross domestic product (GDP) is over $23 trillion, and its debt has accumulated to an eye-popping $31.4 trillion, with the federal government’s cash balance dipping below $40 billion. 

A big reason for why a default would have triggered a global recession is the damage it would have done to the dollar’s creditworthiness. In response to the last recession, which came with the pandemic in 2020, the US government carried out decisive expansionary monetary policy – buying bonds worth multiple billions of dollars to finance spending to blunt the edges of the full-blown crisis, a large part of which was a corporate handout. This was on top of years of debt accumulated from massive military spending and easy money policies that enriched the corporate elite. Similar public spending measures now would simply not have been possible with the default and with a tarnished position of the dollar. And with rampant  inflation, the room for expansionary monetary policy has been greatly reduced.

But despite the dire consequences predicted, the Democratic Party made no attempt to address the debt ceiling issue when they had the chance. It is clear that their crass calculation – with callous disregard for the suffering of millions – was that working people would blame Republicans for the debt impasse and that that will help with Biden’s presidential campaign next year. 

In fact, Barack Obama could have eliminated the debt ceiling in 2009, when he was President and the Democrats had a majority in both Houses, including a filibuster-proof supermajority in the Senate. Democrats prefer to use the periodic debt ceiling impasse with the Republicans as cover to be able to carry out major attacks on tens of millions of working people and the poor.

Who Would Have Paid For A Default?

Short of a full-blown default, the institutions of the ruling class were considering what economists have termed as a “breach.” A breach of the debt ceiling would have been a way to avoid a technical default for a few weeks by continuing to pay bondholders at the expense of other budget items, such as spending on social security benefits and healthcare. A breach is not as serious as a default, which would only occur if the Treasury failed to make a debt payment on time.

As the New York Times reported, most market watchers expected that “the Treasury Department would opt to make interest and principal payments to bondholders before paying other bills” in case they needed to resort to their contingency plan of a breach.

Who are these bondholders? Some treasury bills and bonds are owned by the Social Security Trust and the Military Retirement fund, but that together comes to less than $7 trillion. The bulk of US debt – over $24 trillion – is owned by some of the wealthiest individuals and institutions globally.

Prioritizing payments to bondholders means postponing payments for social security and other retirement recipients and federal government worker salaries.

A Moody’s Analytics report estimated that a debt ceiling breach even as short as about a week would have slashed 1.5 million jobs, raising the unemployment rate from 3.4% to 5%. A two-month-long breach would have likely resulted in a massive wave of unemployment, cutting nearly 8 million jobs and pushing the unemployment rate to 7.8%, causing a recession “comparable to that suffered during the [2008] global financial crisis.” 

All of this shows that even when staring into the prospect of a breach or a default, the ruling class was gaming out the fallout by looking at how to avoid having the burden fall on the global elite and instead on ordinary – and the poorest – people. It also explains why the Democrats feel confident to play Russian roulette with the economy, even though they have had multiple opportunities to address the debt limit.

What Happens Now?

Though an outright collapse has been prevented, the nation’s and the world’s economy is still on the edge of a crisis. And ordinary people understand that. The damage to millions of working families through the cost of living crisis and the end of COVID-era programs, like expanded child tax credits, is difficult to overstate.

Recent polling shows the most negative opinion ever recorded about the nation’s economy, with 70% of Americans saying the economy is in poor shape and that they are not optimistic for the future. Just 33% of Americans approve of Biden’s record on the economy. Working people are angry at having to take on the suffering that comes from crisis after crisis under capitalism. This stems not only from working people’s anger over the debt ceiling fiasco caused by both the Democrats and Republicans, but also growing anxiety from the ongoing high inflation, and the chronic and exacerbating housing affordability crisis.

The term “greedflation” has come to capture working and young people’s growing understanding that corporations not only do not pay for capitalism’s economic crises, but systematically seek to profit from it, including by raising prices “simply because they can.”

Working, and especially young, people are increasingly drawing the conclusion that this system does not work for most of us. The credibility of the two parties is at a historic low. What’s been sorely missing is political leadership on the left. Environmental organizations, correctly furious at the debt deal kowtowing to Manchin’s methane pipeline chanted, “Schumer, stop the dirty deal.” But corporate Democrats like Schumer have never represented working people, and progressives inside the party have proven spineless. The working class will face a dead end as long as the leaders of the labor, environmental, and social movements remain tied to the Democrats. We need a new party independent of the Democrats and Republicans that will fight for the needs of the working class. One whose representatives will be held accountable by a democratic and militant rank-and-file leadership which actively builds mass movements.