The last time the U.S. found itself on the verge of a debt ceiling disaster, David Kamin had a front row seat to all the action.
An economic adviser in the Obama White House, Kamin was among those charged with solving the 2011 standoff that rattled global markets, dented the economy and led to an embarrassing downgrade of America's credit rating. The government narrowly averted a catastrophic default that year, striking a deal with just days to spare.
But more than a decade later, with the nation deadlocked again over the debt ceiling, he fears the outcome this time around could be far worse.
“There’s the potential for it to be very bad,” said Kamin, who did a stint as a top Biden economic staffer before returning to academia last year. “We’re back here, and there’s a real risk to the economy on the line.”
Kamin isn’t the only one struck by a foreboding sense of déjà vu. From the White House to Wall Street, a growing number of veterans of the 2011 debt ceiling crisis are again watching a story of bluster and brinkmanship play out — and are terrified this will be the time it ends with the country in financial ruin.
"It feels like there's a desire to get closer and closer to the brink," said David Vandivier, who was a senior Treasury official during the 2011 negotiations. "At a certain point, you don't know where the line is."
The parallels to the Obama-era stalemate are clear, as House Republican leaders vow to place restraints on a Democratic administration, while also trying to manage their troublesome conservative wing.
But unlike in 2011, Republicans are preparing to stare down the White House with no clear consensus on what they want in exchange for keeping the U.S. financial system afloat. The prevailing principle, instead, appears to be extracting a degree of political pain for President Joe Biden. And perhaps most worryingly — Democrats, economists and even some Republicans say — there’s little confidence that House Speaker Kevin McCarthy has the influence to successfully steer his conference away from the brink.
“I wish I could look at this, having been through a bunch of these, and say there’s going to be a bunch of drama but this is how it gets resolved,” said Brendan Buck, an aide to then-GOP House Speaker John Boehner during the 2011 debt negotiations. “But I don’t know how this gets resolved. There are just huge obstacles here [that] I don’t think were quite as problematic in 2011.”
Or as Sen. Brian Schatz (D-Hawaii) put it: “I think these people are nuts, and they’re serious.”
Dan Pfeiffer, a senior Obama aide during the 2011 showdown, said that of his entire time in the administration, he was never more scared than in the final days of that debt ceiling fight, "because it was very possible we were going over the cliff."
For him, the similarities to now are obvious: a Democratic president unsure if the leader of the opposing party has the “clout” to get his conference on the same page. But the White House, at the time, felt Boehner understood and took seriously the dangers of default.
“Boehner may have been willing to put more of his ass on the line. He did intellectually and substantively understand why default was terrible," Pfeiffer said. “I'm not sure that McCarthy understands that, that McCarthy cares, that McCarthy would value the full faith and credit of the United States over his own job.”
The U.S. has never intentionally defaulted on its debt, a track record that has made its Treasury securities a safe haven for investors globally and allowed the government to borrow money at low interest rates.
There is universal consensus that a debt ceiling breach would be a historic catastrophe. Interest rates would skyrocket and the stock market would tank. The economy would spiral into a recession, shaking consumer confidence and decimating the nation’s financial credibility on the world stage. The impact could ripple across the globe, prompting debt crunches in lower-income countries with foreign currency reserves held in a suddenly weaker U.S. dollar.
At the Treasury Department, officials would be forced to prioritize what payments it could make to bondholders — a logistical challenge the government has never attempted before, and one sure to invite blowback for funneling money to foreign investors while Social Security and other benefits go unfunded.
“You’re shaking the bedrock of the global financial system to the core,” said Mark Zandi, the longtime chief economist at Moody’s Analytics, who projects that just a few weeks of default would double the unemployment rate and wipe out $12 trillion in household wealth.
The severity of those consequences has so far offered some comfort on Capitol Hill and in company boardrooms, where the belief is that the cost of failure is so high that the parties can’t afford not to reach a deal. Since the 2011 standoff, Congress has raised or suspended the debt ceiling nine times, three of which came under former President Donald Trump.
“America's not going to default on its debt. There are going to be a lot of stories and gnawing and gnashing of teeth in the media about what's going to happen,” said McCarthy ally and former Rep. Rodney Davis (R-Ill).
Though the possibility of default is still several months away, Biden has signaled plans to meet with McCarthy on the issue, though the White House has said he will merely reiterate his current position that the debt ceiling is not subject to negotiation. In both the administration and Republican leadership, officials have begun privately gaming out endgame scenarios.
Democrats believe that cutting discretionary spending will prove deeply unpopular with the public once Republicans pinpoint the programs they’d slash. That, in turn, will force Republicans to moderate their demands. Within the GOP, there’s widespread belief the White House will eventually drop its “no negotiation” stance and seek a bipartisan resolution.
“The administration and the Senate needs to realize Kevin's serious," Davis said. "He's serious about having this discussion [about spending cuts]."
The White House declined to comment for this article, though officials have previously said that while Biden won't negotiate over the debt ceiling, he's open to discussing broader fiscal policies.
McCarthy spokesperson Chad Gilmartin said the speaker looked forward to discussing a "responsible debt ceiling increase" with Biden, and added the White House should be open to negotiating "how we can put America on a sounder fiscal path by finally addressing irresponsible government spending."
But whenever that meeting does happen, few expect Biden and McCarthy to find any common ground. The White House has shrugged off concerns about its spending, buoyed by what it sees as the successful role its trillion-dollar relief Covid-relief plan played in accelerating the economic recovery.
McCarthy, meanwhile, may struggle to find a set of spending cuts that can satisfy his own conference, much less win support across the aisle. Some Republicans have floated a range of proposals targeting programs like Medicare and Social Security, even as McCarthy and Trump have publicly dismissed the idea of touching entitlements.
Though the Republican party is focused on securing sharp funding reductions across government, there’s no agreement so far on how much or where exactly they should come from. Some, like Rep. Andy Biggs (R-Ariz.), have questioned the need to raise the debt ceiling at all.
“It’s scary because with everything that McCarthy has given away to his right wing, he may have restricted his range of motion in ways that are going to be very dangerous,” said Sen. Michael Bennet (D-Colo.).
In the interim, many of the 2011 veterans have spent recent weeks emphasizing the gravity of the situation to anyone who will listen, fearful that every week that goes by without progress ups the odds of a disastrous outcome.
“This time," said Zandi, "it feels different to me. It feels much more dysfunctional."
