U.S. House passes bill to raise debt ceiling

Yahoo Finance’s Rick Newman joins the Live show to discuss news that the House has passed Kevin McCarthy’s proposal to raise the U.S. debt ceiling.

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PETE BUTTIGIEG: The House Republicans need to take the default off the table. This idea of taking the economy hostage in case they don't get their way is such a threat to the US economy. Our budget is one that has the right kind of funding for the future of transportation. Really hard to tell other than this kind of slash and cut rhetoric, hard to tell what their counterproposal amounts to in detail. But that's the conversation we could be having if we got over the brinksmanship and if House Republicans would make clear that they, in fact, are not willing to throw the US economy over a cliff by refusing to pass a clean debt limit bill.

RACHELLE AKUFFO: Transportation Secretary Pete Buttigieg there expressing frustration on Tuesday at the bipartisan split over the debt ceiling. As we take a look at that, House Republicans passed a bill yesterday to increase the debt limit, putting pressure on President Biden to open up negotiations with Speaker McCarthy. But what would happen if the debt ceiling isn't lifted? Yahoo Finance's Rick Newman joins me now to break it all down for us. So, Rick, lay out the scenarios for us.

RICK NEWMAN: Hey, Rachelle. Well, the Republicans can now say we do have a plan, and we're not playing brinkmanship. And they did pass this bill yesterday. There were some doubts they could do it, but they did. And what that bill would do is it would cut federal spending by a lot over the next 10 years in exchange for raising the borrowing limit.

Now, there's no chance that the Senate, which Democrats control, is going to pass that bill. So now there have to be some negotiations about how we're actually going to get to the finish line, and this is going to go right down to the wire, as it has before. If we actually end up with default, it would be disastrous. I mean, there's no doubt about this.

It would completely throw global financial markets into turmoil. It would mean the United States cannot pay everything it owes. The Treasury Department would have to decide who don't we pay? Do we not pay vendors? Do we not pay Social Security recipients? Do we not pay interest on federal debt, Treasury securities? And that's why this would just be a complete disaster.

So I mean, we're probably not going to get to that point of total disaster, but what the Biden administration is saying is let's not even threaten it. Let's not even talk about it. So if there's any good news here, it's that we got through this first step. The Republicans did pass their proposal. So this is moving forward.

RACHELLE AKUFFO: And we know that Janet Yellen had potentially described the fallout from this as catastrophic if this isn't resolved. But for everyday people and businesses who are wondering how would this actually affect me, though, it might in my day-to-day life, how would we see that start showing up in goods and services?

RICK NEWMAN: I mean, I'd love to say ordinary people should just completely ignore this because this is just-- this is a man-made crisis. It's a self-imposed crisis. There's nothing that says Congress can't just raise the borrowing limit as it has something like 60 times in the past and just get on with business. If this really does come down to the wire and become a showdown, use 2011 as a guide. In 2011, we literally got down to the day that the Treasury Department was going to run out of money.

And we came so close to defaulting that the stock market fell by about 15% in one month, and it took six months to recover those losses. So that's the threat for investors. If we actually got into a default scenario, we would have a recession, and we could-- it probably would be a very bad recession with unemployment going up. So one of the things all the analysts say is that when the markets begin to flinch, that is actually the thing that will get Congress to resolve this issue. But we may have to go through this stupid drill where it takes turmoil in markets for the two parties in Congress to get together and say, OK, we really do need to solve this problem.

RACHELLE AKUFFO: As if markets weren't already flinching at things like the banking crisis already. A big thank you there to our very own Rick Newman.