A debt-ceiling crisis years in the making

• For Democrats, including then-Vice President Joe Biden, the episode demonstrated why they should never negotiate with hostage-takers.

Driving the news: The Treasury Department has initiated what it calls "extraordinary measures" after the U.S. officially hit its $31.4 trillion debt limit on Thursday, giving the Biden administration and Congress six or so months to stave off a catastrophic default.

Why it matters: Every debt-ceiling standoff begins with both sides digging in their heels — and ends with one of them blinking. But the sour mood in Washington — and on Wall Street — suggests this time could be different.

• Jeff Siegel, a former Senate staffer who's now head of U.S. public and regulatory policy at BNP Paribas, told Semafor "there's probably never been a greater chance" the U.S. defaults than this year.
• The venerable political analyst Charlie Cook agrees, writing that the certainty of avoiding calamity through compromise is "lower than we have ever seen before."

What's happening: The Trump era's political incentives — including online fundraising that relies on hyperbole and bluster — have encouraged House Republicans to adopt a politics of grievance and intransigence.

• Look no further than the way Freedom Caucus rebels dug in during the speaker election, forcing Rep. Kevin McCarthy to make historic concessions that empowered the conference's MAGA wing.
• Many of those same rebels are once again in the driver's seat: With McCarthy agreeing to reduce the threshold for a no-confidence vote to just one member, any misstep on the debt ceiling could be fatal to his speakership.

The intrigue: Today's populist, culture war-driven GOP is less beholden to the business establishment than it once was, weakening the stakeholders most vocal about the dangers of playing with the country's credit.

Averting disaster

Below are five possible scenarios for how one of the most consequential political fights of the Biden presidency could end:

1. McCarthy gives in: As outlined above, McCarthy unilaterally disarming on the debt ceiling would likely end his career. Freedom Caucus rebels have been coy about using the single-member "motion to vacate" to oust McCarthy if he fails to extract spending cuts — but it's hard to see what they would use it for, if not this.
2. Biden gives in: The White House's official line is that they will not negotiate on the debt ceiling. That position forced Senate Minority Leader Mitch McConnell (R-Ky.) to blink during the last showdown in 2021, and Biden is determined to run the same playbook.
3. Compromise: The "smart money" is on both sides saving face by establishing a commission to make nonbinding recommendations for spending cuts. Sen. Joe Manchin (D-W.Va.), who has at times stifled Democrats' agenda over his own debt concerns, has signaled he may reintroduce a bipartisan bill to create a "rescue committee" for every endangered government trust fund.
4. Fed mints "the coin": Some progressives have called on Treasury Secretary Janet Yellen to use her unilateral authority to issue a small platinum token, give it a face value of $1 trillion, and deposit it at the Federal Reserve — circumventing Congress and the borrowing limit. Yellen has dismissed the loophole as a "gimmick."
5. The U.S. defaults: Moody's chief economist Mark Zandi predicted in 2021 that a default "would cost the U.S. economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth, and send the unemployment rate surging to roughly 9% from around 5%," according to WaPo.