Debt ceiling debate is a bipartisan problem: Rick Newman

Yahoo Finance Senior Columnist Rick Newman breaks down the latest surrounding the debt ceiling debate and whether lawmakers are serious about cutting government spending.

Video Transcript

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- Fed Chair Jerome Powell making it clear, he says Congress needs to raise the debt ceiling.

JEROME POWELL: There's only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all of its obligations when due, and any deviations from that path would be highly risky, and that no one should assume that the Fed can protect the economy from the consequences of failing to act in a timely manner. In terms of our relationship with the Treasury, we are their fiscal agent, and I'm just going to leave it at that.

- That's what we call definitive, folks. Those comments came ahead of a big meeting between President Biden and House Speaker Kevin McCarthy at the White House. This is their first one-on-one meeting in this new session of Congress. McCarthy is said to be pushing for yet, unspecified spending cuts. Senior Columnist Rick Newman here with what might go down when these guys meet. Look, it's not entirely clear. It's been clear that the Republicans want some cuts, but how far are they willing to go, is the question?

RICK NEWMAN: Yeah, they've backed themselves into a corner already because while they might sound popular in theory-- we should cut spending, the government is too bloated, and so on-- when you get to the specifics, spending cuts are very, very unpopular. And if you just put together the big pieces of the federal debt or the federal spending, you can figure out why.

So, first of all, Medicare and Social Security are one third of all federal spending. Cutting those is so unpopular that McCarthy has already said those are off the table. So that leaves-- so you've already eliminated one third of spending, where you're not going to cut there so you have to look at the other 2/3. A big part of that is defense, which Republicans don't want to cut, so they're probably going to say that's off the table, too. So, I mean, there just isn't that much left.

What they're probably going to go after, which is what Republicans often do, is try to figure out ways to cut Medicaid, that is the health program for the poor, and other types of some other health care funding, but that runs into tons of opposition too for lots of reasons. So to cut Medicaid spending, you cut payouts to doctors, and the doctors lobby says, hold on a minute, they're already so low, we don't want to take Medicaid patients. You cut aid to the states, and you get the states saying, no. They all have lobbying groups in Washington saying, you're not cutting our payments. Cut somebody else.

So once this exercise gets underway, the way this works in Washington is everybody's fine cutting spending that goes to somebody else, but nobody's fine cutting the spending that goes to me. And that's why there are not going to be any major spending cuts at the end of this process.

- It was a pretty definitive statement from Jerome Powell. You almost wish, he was in the room with those two. What is Biden's negotiating position been leading up to this meeting?

RICK NEWMAN: That there will be no negotiations, and I think he's going to come pretty close to getting that. Everybody should know that even though, we have to talk about it on the shows, we have to cover this for the next four months, we are not going to have a default on US obligations. The debt ceiling is going to get raised, and the most likely way this is going to go down is there might be something, like, a new commission to study some ways to cut spending and get the debt problem under control. I mean, we do have way too much debt, but that's the fault of both parties going back 20 years. Republicans cut taxes too much, that doesn't boost the economy the way they say, and then we have all this spending in the COVID bills. Some of those were bipartisan, some of those were Democrats only.

So this is a bipartisan problem, and we're not going to get one party in what is, in effect, really, a majority of one party, what you might call, 50 or 100 hardcore Republicans in the House of Representatives solving this problem. It's not going to happen.

- And hundreds of billions, it looks like a fraudulent spending in terms of that COVID, but the hearings will begin soon on that.

RICK NEWMAN: And we're not going to get that money back, I mean.

- Right, that's gone, and the debt ceiling argument is really over past spending. That is money-- bills to be paid, not future spending. Rick Newman, good to see you, sir.

RICK NEWMAN: Thanks, guys

- Thank you.