U.S. Senate Republicans offer short-term debt-limit extension as potential default looms

U.S. Senate Republicans on Wednesday proposed extending the federal government's debt limit into December in order to avert a looming debt default.

"To protect the American people from a near-term Democrat-created crisis, we will also allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December," Senate Republican Leader Mitch McConnell said in a statement.

"This will moot Democrats' excuses about the time crunch they created and give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation," McConnell said.

Senate Majority Leader Chuck Schumer didn't respond publicly, but Senate Democrats are poised to accept the proposal to defer a showdown over the debt limit until December, according to local media.

The proposal came after U.S. President Joe Biden earlier Wednesday held a virtual meeting with business leaders to discuss the dangers of the U.S. defaulting on its debt, stepping up pressure on Republicans to raise the debt limit.

"Raising the debt limit is paying our old debts. It has nothing to do with new spending or what may be coming this year or other years," Biden said.

"Democrats are willing to step up and stop this economic catastrophe if Senate Republicans will just get out of the way," said the president, adding that the failure to raise the debt limit will undermine the safety of U.S. Treasury securities and threaten the U.S. dollar's status as the world's reserve currency.

Economists at the White House Council of Economic Advisers also warned that an unprecedented U.S. default could induce a global financial crisis and recession.

"A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge" the White House economists said Wednesday in a blog post. "Employers around the world would likely have to begin laying off workers."

Noting that the 2008 financial crisis had ripple effects throughout the global economy that ricocheted back to U.S. shores, the economists said that a global financial crisis driven by a U.S. default "has the potential to be even worse," as the global economy has not fully recovered from the COVID-19 pandemic.

U.S. Treasury Secretary Janet Yellen told lawmakers that they have to raise or suspend the debt limit by Oct. 18 when the U.S. Treasury Department is likely to exhaust its "extraordinary measures."

As part of a bipartisan budget deal enacted in August 2019, Congress suspended the debt limit through July 31. After the debt limit was reinstated on Aug. 1, the U.S. Treasury Department began using "extraordinary measures" to continue to finance the government on a temporary basis.