Breaking (Down) the Debt Ceiling

Breaking (Down) the Debt Ceiling

Podcast In the Public Interest

Episode Guests

In This Podcast Episode

Since 1960, Congress has raised, revised or extended the statutory debt ceiling 79 times. The United States reached its debt ceiling in January 2023, prompting a congressional showdown and sparking fears of extreme market volatility and a global recession if the US were to default on its legal obligations. The 2023 debt ceiling crisis ended in June, when President Biden signed legislation that suspended the debt ceiling in exchange for budget cuts.

In an interview recorded shortly after Congress reached a deal to suspend the debt ceiling, co-host John Walsh speaks with Senior Counsel Eric Lesser about the circumstances and details of the debt ceiling standoff. Lesser was a White House Aide from 2009 to 2011 and witnessed the buildup to the 2011 debt ceiling crisis firsthand. He also served four terms in the Massachusetts State Senate and was a consultant for seven seasons of the hit HBO comedy Veep. As a Senior Counsel at WilmerHale, Lesser advises clients on a wide range of complex, government-facing matters.

Walsh and Lesser discuss the history of the debt ceiling and the run-up to the debt ceiling fight in 2011. They talk about the individual players at the center of the most recent debt ceiling standoff and what these episodes can teach us about the state of American politics today. Lesser also reflects on his role in Veep and his perspective on the political brinksmanship displayed in the debt ceiling negotiations. 

Related Resources:


Episode Transcript

Expand All Collapse All
  • Transcript


    Speakers: John Walsh, Felicia Ellsworth and Eric Lesser

    John Walsh: Welcome to “In the Public Interest,” a podcast from WilmerHale. I’m John Walsh.

    Felicia Ellsworth: And I’m Felicia Ellsworth. John and I are partners at WilmerHale, an international law firm that works at the intersection of government, technology and business.

    Walsh: Missed payments to federal workers and to Social Security recipients. Soaring interest rates and extreme market volatility. Millions of workers laid off and unable to access public assistance. Even a global recession. These are just some of the consequences that experts and policymakers have feared could occur if the United States breached its statutory debt ceiling.

    Ellsworth: Fortunately, we’ve never had to see these predictions come to pass. The United States has never defaulted on its legal obligations. Since 1960, Congress has raised, revised or extended the debt ceiling 79 times.

    Walsh: But it hasn’t always been easy. In 2011, the United States came within two days of breaching the debt ceiling. Fast-forward to 2023 and it was déjà vu all over again. President Biden signed legislation that suspended the debt ceiling in exchange for budget cuts on June 3—two days before the Treasury predicted it would run out of money to pay its debts.

    Ellsworth: We invited Eric Lesser on the podcast to discuss the circumstances and details of the most recent debt ceiling standoff, how it compares to 2011, and what these episodes can teach us about the state of American politics today. Eric was a White House aide from 2009 to 2011 and witnessed the buildup to the 2011 debt ceiling negotiations firsthand. Following that, he served four terms in the Massachusetts State Senate. He was also a consultant for seven seasons of the HBO comedy Veep. Eric joined WilmerHale as a senior counsel in February, and he advises clients on a wide variety of complex, government-facing matters. And now, here are John and Eric to discuss.

    Walsh: Just a note before we start: this interview was recorded in June, shortly after Congress reached a deal to suspend the debt ceiling. Congress is now back from its summer recess, and focus has already shifted to a possible government shutdown at the end of September. We won’t discuss that in this episode, but Eric’s observations about political dynamics of the debt ceiling crisis remain relevant to the ongoing situation in Congress.

    Walsh: Eric, welcome to the podcast. Thanks for taking the time to be here today.

    Eric Lesser: Thanks for having me, John. It’s great to be here. Greetings from Massachusetts.

    Walsh: Hey, so before we dive into our discussion of the debt ceiling, you’ve had, of course, a very interesting career in law and politics. Can you give us a little bit of an overview of that?

    Lesser: Yeah, sure, well, first, thanks for having me again, John. It’s fun to be here, and it’s been great returning to WilmerHale. I’m a few months in and I’ve really, really enjoyed it so far. So, my start in national politics really began when I was in college. I was very active in the campaign of a really iconic governor’s race in Massachusetts in 2006 for Deval Patrick with the College Democrats. And I remember one of the organizers sent us all an email inviting us to an event with—I think he was described as “this person you may know, Barack Obama, who’s a senator in Illinois.” And I remember going to that event and just being blown away by what he had to say and the power of his message. One thing led to another, and I started driving up to New Hampshire every moment I could. My big break was I helped drive then-Senator Obama around New Hampshire during the lead-up to the first-in-the-nation primary. I drove all around to little church basements and VFW halls and living rooms across New Hampshire. Eventually I ended up traveling with him to 47 states and six countries through the 2008 presidential campaign. And when that campaign was all over, I went to work as the special assistant for David Axelrod, who was the president’s senior advisor. I had a little kind of cubbyhole office right next to the Oval Office for the first two years of his administration, and then went to work for the President’s Council of Economic Advisers. One thing led to another, I went to law school, eventually have made my way here to WilmerHale, but I have been involved in either federal or state politics, in one way or another, for the last 15 years.

    Walsh: That’s great. And you went on to the Massachusetts State Legislature, didn’t you?

    Lesser: Exactly. So, I was in law school. I was a 3L. I was wrapping up my time in school, and the longtime state senator from the community I had grown up in announced that she wasn’t running for reelection. And I had every reason in the world—John, I know you’ve got a history in politics, so you can appreciate this—every reason in the world not to run. I had a 6-month-old. I hadn’t taken the bar yet. I hadn’t finished law school. But a group of activists and community leaders who I had been involved with in my home community in Western Mass. were talking about the need to really put our area of the state on the map. To make a long, long story short, I jumped into that race, won by 192 votes. Let me tell you something—when you win by 192 votes, you remember every baby you kissed, every hand you shook, every door you knocked on. It kind of flashes in front of your eyes.

    I feel really strongly about the need to get into the arena and to be involved in public service. This past fall, after eight years in the State Senate, I ran for lieutenant governor in Massachusetts on a message of infrastructure, economic policy, workforce development issues, and a lot of my work at the firm now is around those kinds of economic policy, fiscal and monetary policy issues. It’s been a lot of fun, definitely been a roller coaster and had a little bit of PTSD watching the debt ceiling negotiation from afar this time, remembering my memories from 2009, 2010, 2011.

    Walsh: Well, let’s shift over to the debt ceiling discussion. Let’s just start with a premise: where did the debt ceiling come from? I mean, the House of Representatives has the special authority over the budget of the federal government. Where is the debt ceiling? It’s not in the Constitution, is it?

    Lesser: It’s not in the Constitution. It was actually a creation of Congress. It was a creation of law in 1917 as the US was running up massive bills to pay for World War I. One of the ways to help create some structure and some oversight around spending around World War I was to create the debt ceiling, or the debt limit. And since then, over a hundred years ago, it’s been raised 78 times. And it had been a fairly ministerial pro forma, however you want to describe it, exercise. Every few years, the government would come up against the cap and Congress would either suspend the cap or would push it out and raise it. This changed quite a lot after the Republican takeover in 2010 vis-a-vis the Obama administration and the push that they used to really weaponize the debt limit in 2011 to try to force spending limits. But this was a legal construct that was created in a very specific context around spending around World War I.

    Walsh: Let’s go back to 2011 and the run-up to the debt ceiling fight that year. What was your role?

    Lesser: I worked as the special assistant to David Axelrod. Axelrod went back to Chicago to start to plan out the reelection campaign, and I stayed in DC. I went to work for Austan Goolsbee, who was the chair of the President’s Council of Economic Advisers. And I was in charge of, really, the strategic engagements for the CEA. The CEA is really the built-in economic think tank for the president. It’s staffed by, for the most part, academic economists, people with PhDs, people with real deep background and expertise in different economic policy issues; and historically their role was to provide really dispassionate, really almost academic advice to the president about econ policy decisions. So, in the run-up to the debt ceiling, the CEA played a very important role analyzing the impact of different spending decisions, what was going to happen to GDP, what was going to happen to unemployment rate, how actually, mechanically, the debt ceiling worked in practice. We were coming off of a historic economic crisis. The economy was still very weak; the stock market had still not recovered after the ’08 crash. And there were big questions about the degree to which the debt ceiling and cutbacks in federal spending at that point were going to retrigger a recession or have spillover effects—for example, in other markets and in other countries.

    Walsh: So, to give us a sense of what happened when the Republican House at that time started to make noise about not lifting the debt ceiling, what’s the response within the White House to that?

    Lesser: There was actually almost a precursor to this, which has been lost in history, which was really one of the first tests of this brinksmanship. The elections happened in November of 2010. The new speaker, the new majority takes over in January of 2011. There was a vote on a continuing resolution to continue to fund the operating budget of the government, and there was a threat of a shutdown.

    And I remember actually having a meeting—this later helped inspire a Veep episode—where the kind of administrators and the HR people at the White House went through a list of employees and kind of went through who was essential and who wasn’t essential. And I remember a conversation where they said, ‘Well, certain people are not going to get paid but are still going to have to work,’ which led to a very Washington parlor game of everybody trying to compete with whether or not they were going to be deemed essential or not.

    After the April continuing resolution debate, there was this idea of a grand bargain, in which would have been some combination of cutbacks to entitlement spending; potential tax and revenue increases, especially on higher earners; and government efficiencies and savings in both non-defense and defense discretionary spending that would kind of help solve all this all at once. And months and months and months and months were spent trying to get that figured out, and a lot of personal time between President Obama and Speaker Boehner was spent trying to hash that out. It obviously collapsed and didn’t happen. We ended up with the sequester process and the Budget Control Act of 2011.

    So that was a big precursor and a dress rehearsal to what just happened, and I think it’s important to point out, John, a lot of the key people are all still there: Mitch McConnell, obviously, President Biden; Speaker McCarthy was an observer to that process as well back in 2011.

    Walsh: So let me distinguish between two different things that I think you’re getting at. One is the failure to fund the government and then a failure to raise the debt ceiling. Obviously, when the government shuts down, there are all sorts of different implications for day-to-day existence. But if the debt was defaulted upon, are there other consequences beyond that?

    Lesser: Yeah, they are two very different things. Unfortunately, government shutdowns, I don’t want to say they’ve become common, but there’s been multiple examples of them. In 1994, there was a government shutdown; during President Trump’s battles over the border wall, there was a shutdown. That’s day-to-day operations of the government.

    The debt ceiling is something very different, because the debt ceiling is really the credit card debt of the country on services that have already been rendered. If we breach the debt ceiling, the United States government would quite literally be in default of its obligations and default of its own bonds. You would still have those significant operational questions about: How do bills get paid? How do employees get paid? What happens to Social Security checks?

    But you would have this much bigger systemic issue: the full faith and credit of the United States government and of the $31 trillion in debt. It would call into question US Treasury bonds, which are considered the safest investment in the world. It could create a massive flight away from government-backed investments. You could see a cascading set of issues there—spiraling interest rates, massive stock market decline. Moody’s, for example, did an analysis; they estimated 7 million jobs lost almost instantly because of the immediate pullback that would happen in the flight from US investments across the board. So you’re talking about, really, a breakdown of the US financial system, which is many orders of magnitude more significant than what would be a temporary shutdown of the government’s operating budget.

    Walsh: Wow. You mentioned a moment ago that now-President Biden was vice president in 2011. Was he involved in the discussions, and what lessons do you think he drew from that?

    Lesser: He was very involved. He ran a series of negotiations with Eric Cantor. They met over a dozen times, I think, or maybe more, over what a kind of holistic grand bargain compromise was going to look like. A lot of the focus in the beginning was on Boehner and the House Republicans, but you obviously needed the Senate to approve it as well. And Vice President Biden played a very key role working with senators, and he has a close working relationship with McConnell.

    One of the key lessons I think Biden took from that experience in 2011 was not to negotiate. The debt ceiling is a creation of Congress. Congress approves the spending that leads to the debt. Congress should be in charge of putting together the solution to the debt ceiling. Making that crystal clear from the beginning, in a way, gave Speaker McCarthy the space to put a deal together that was then palatable to everyone.

    Walsh: So, that’s an interesting point. From the outside, it looked like President Biden and his administration were negotiating with the House. Was the dynamic actually a little bit different from that?

    Lesser: Well, if you remember shortly after McCarthy’s leadership issues and the drama around him securing the speakership, once that died down, the conversation very quickly did begin to pivot to the debt ceiling. And President Biden and his folks kept a very stern line for months that the debt ceiling was not going to be a chit in negotiations over the budget and over all these other issues.

    A few months after that process began, McCarthy did pass his own debt ceiling plan. Now, it was a dead-on-arrival plan for the president and for the Senate, but he did get his caucus to agreement around a set of parameters of what their ideal solution to the debt ceiling would be. If you remember, John, they had permitting reform on there and rescinding the COVID funds and the energy tax credits and the IRA and everything else. And it wasn’t until after that was done that a negotiation began. But at that point, McCarthy needed Democratic votes to get the ultimate debt ceiling approved, which gave significant leverage to the White House and to congressional Democrats to temper the demands that the Republicans were making.

    Walsh: So, that’s an interesting point, because that suggests that Speaker McCarthy needed to come up with a resolution to the debt ceiling problem and couldn’t simply run it up to the last minute and maybe take the debt ceiling over the edge of the cliff. Why was that?

    Lesser: Well, it would be supremely irresponsible to do that. It’s different when you’re in the opposition versus when you are in power. As the speaker, I do think that he feels an obligation to avoid a calamitous and self-imposed catastrophe on the country. And I do think that the Biden folks did a very good job framing this correctly, which is talking through what the consequences would be, who would be at fault if a deal didn’t get done, and at the end of the day, most of the members of his caucus wanted a resolution to this. So what ended up happening in the ultimate deal is more Democrats actually supported it than Republicans. And it actually ended up being one of the most bipartisan votes in recent history.

    And it’s an interesting harbinger of what’s going to maybe come in the future for these must-pass bills. What you’re potentially going to see develop is a coalition, so to speak, of more moderate, maybe more mainstream members of the GOP House caucus aligning with the more centrist, more moderate members of the House Democratic caucus to get these must-pass bills over the finish line. And if that happens, that gives immense leverage to Democrats to shape these bills. And that’s, by the way, why you then had this revolt by the more hardline members the week after the debt ceiling debate and you had this really dramatic protest vote on these House procedural votes that literally brought the House to a standstill. McCarthy sent everybody home.

    Walsh: Wow. Has that continued, or has he gotten that wing of his caucus under control since then?

    Lesser: Well, it’ll be an interesting question. So, to back up a second, the debt ceiling gets done; they came together on a very bipartisan vote to get this done. It passes the Senate, the president signs it. The next week, there were a series of fairly routine and partisan votes that were kind of “pro-Republican” that got blocked by the House Freedom Caucus members, really as a protest to what they saw as the deal that was struck to get the debt ceiling done. Two fairly routine and very popular Republican items: One was related to gas stoves. The other was related to the scrutiny of federal regulations. The rule that would have set the terms of debate on those bills was voted down. You had a group of Republican caucus members who crossed over and voted against their own caucus’s rule, which essentially hands power to the minority party to set the debate. This is a very big deal. This hasn’t happened in over 20 years. Even at the height of, for example, Speaker Pelosi’s challenges with the Squad or with progressive members of her own caucus, there was never a vote-down of a rule like this in this fashion.

    The question now is, What will this mean moving forward? Was this a temporary protest vote to kind of flex muscle and say, ‘We’re angry about what happened with the debt ceiling’? What will McCarthy have to give in on or what will he have to acquiesce to in order to get those breakaway votes back? What a lot of people are saying will happen—and there was a dynamic of this when Obama was president with Pelosi as minority leader—is that a dynamic may develop that for must-pass pieces of legislation like the debt ceiling, the Republican speaker will have to rely on the votes of Democrats to get those must-pass bills done, which creates immense leverage for Hakeem Jeffries and the Democratic caucus and will have significant policy repercussions. So for programs that are popular for Democrats, you could end up seeing quite a lot protected, preserved, or even new initiatives launched if that kind of dynamic holds. And that’s part of the reason why it’s engendered such a vociferous opposition from the Freedom Caucus. But again, they only have a narrow, narrow margin—five seats.

    Walsh: Eric, that dynamic you’re just describing feels like it played out in the debt ceiling negotiation itself in that the Democratic side seemed to have more leverage as a result of the fact that McCarthy knew he wasn’t going to be able to get every Republican vote to get across the line. From your perspective, looking at the debt ceiling deal, how significant were the cuts that were extracted by the Republican side in order to proceed on the bill?

    Lesser: I think that because of this dynamic, it was a fairly even deal, and the roll call vote indicates that. The total savings is going to be estimated at about 1 1/2 trillion dollars over 10 years. The vast majority of those savings—1.3 trillion or so of the 1.5—this is coming from the statutory limits on spending, which will be flat for this year, 1% for next year. Now, it’s important for people to put asterisks around this because the CBO’s estimates are for a 10-year lookout, and the deal is only for two years. So they’re assuming that the deal is continuing for eight years past what the actual parameters of what they voted on will be. It excludes Social Security and Medicare “entitlement spending,” which was a very high priority for President Biden and for congressional Democrats. It also excludes defense spending, which is a very high priority for the Republican caucus. It was also an important priority for President Biden. His own budget had a 3% increase in defense spending. We have massive things going on in the world with China, with Ukraine, etc. So there was pretty broad agreement on that.

    There are a series of more ideological elements to the deal that really don’t have a lot to do with the actual budget impact. So, for example, there’s a clawback of the spending for the IRS agents, this $80 billion that was in the Inflation Reduction Act. Again, it was going to be spent over 10 years. A large portion of that is going to be clawed back; it was unpopular with Republicans. There’s actually an estimate that that’s going to slightly cost the government money because less agents means less enforcement, which means less tax revenue collected. So, it had very little to do with actually balancing the budget and was more policy priority for House Republicans. Some work requirements were added to entitlement programs, including TANF, which is known as food stamps, Temporary Assistance for Needy Families, and some other assistance programs. But again, it’s for people without dependents. They’ve excluded homeless individuals; they’ve excluded veterans. The budget impact is negligible.

    So, overall, I actually think that this was a huge win for President Biden, because the single biggest win is that it takes the debt ceiling issue off the table through the election, and it allows the economy to continue to recover from COVID without the risk of default hanging over markets, hanging over Treasuries. The president is viewed, accurately or inaccurately, as the custodian of the economy and the manager of the US government.

    Walsh: So, let’s go back to Speaker McCarthy. In the drama about his election, one of the concessions that apparently was extracted by the more radical Republicans was to make it easier for individual Republican caucus members to challenge Kevin McCarthy’s leadership. Despite that, we haven’t yet seen anyone come forward on the Republican side and ask for a vote on Speaker McCarthy’s current tenure. Is that something that’s going to happen, and why hasn’t it happened given how negatively a particular wing of the Republican Party viewed this deal?

    Lesser: Well, it’s beyond my capacities to see inside the dynamics of the House Republican caucus. But I would just kind of zoom out and say is some lessons from recent history: the dynamic of House Democrats being required to pass the most important, most substantive legislation that’s coming through Congress this term is a very, very significant dynamic and is a similar dynamic to the one that Boehner faced after the 2011 Budget Control Act and after President Obama’s reelection. A dynamic played out where Nancy Pelosi was actually delivering Democratic votes, in coordination with the Obama White House, to get must-pass legislation done, and it infuriated House Freedom Caucus members and more right-wing members of Boehner’s caucus. Ultimately, he couldn’t sustain that dynamic as speaker. It’s a very, very precarious setup for Speaker McCarthy. The question—what might save him—will be, Can anybody manage this better than him? And right now, there isn’t necessarily somebody out there that can manage this dynamic better than him.

    Walsh: Interesting. So, I’m going to switch gears for a moment to something that’s more purely legal. In the lead-up to these negotiations over the debt ceiling, there was a lot of public discussion of President Biden potentially invoking one particular clause of the 14th Amendment of the Constitution to essentially ignore the debt ceiling and just cause the United States to pay its debts. There was even talk of something called a trillion-dollar coin. Was any of that really serious, or was it just an attempt to shape the negotiations?

    Lesser: Well, it’s interesting. I mean, some of this popped up in 2011, again in 2013; it’s been around. I think it’s worth pointing out that the Treasury secretary, the key leaders, were never really leaning on this as a real option or really gave this much oxygen. I think, as a legal matter, at best it’s an original question, and it would almost certainly go very quickly to the Supreme Court. And if you think about it, it doesn’t really solve the issue, because the key element here of the debt ceiling is what it does to public confidence and global confidence in the faith and credit of the US government and US financial markets and Treasuries. So you would have just as much uncertainty; just instead of Congress deciding, it’d be the Supreme Court, and even then it would be hard to really understand how you would implement it. In some way, it would come back to Congress anyway, so you just need to get it resolved politically and especially coming up against this deadline.

    So it’s like an interesting academic exercise, but I didn’t think it had a whole lot of legs. This is something that Congress just needed to do, and they needed to figure out what the spending would be moving forward. This is a core constitutional function, and there were interesting sort of scenarios that were being played out around how to get around that, but this just wasn’t something that they were going to be able to get out of.

    Walsh: You mentioned the TV series Veep a little bit earlier in our discussion. Did you play a role with Veep? Were you involved in that series?

    Lesser: I was a consultant for the show for all seven of its seasons. I started shortly after the pilot, which was 10 or so years ago, and went through season 7. And we did have our fair share of congressional intrigues across the various seasons and episodes. And we had a government shutdown and debt ceiling battle. Jonah Ryan played a Matt Gaetz-style congressional holdout, and it was a lot of fun. The show was really a lot of fun.

    Walsh: Can you imagine what would have happened if the vice president, Selina Meyer, in this series had been the negotiator of this debt ceiling crisis in 2023? Any thoughts on that?

    Lesser: Unfortunately, I think we’d be facing that Moody’s 7-million-job-loss scenario, because I don’t think she would have had the ability to get a deal done. It’s scary, because you think about it—and I remember kind of chatting with and working with some of the writers on those Veep episodes, and you used to think it can’t get any crazier than this. And then the real-life politics is infinitely more insane and wild than Veep ever was.

    Walsh: As a final question to you, Eric—and this is a tough one, I know—what’s the solution here? Are we going to have repeated run-ups to a debt ceiling crisis every couple of years? How do we get out from underneath this gambling with the full faith and credibility of the US government?

    Lesser: Maybe to give a dose of optimism, I think that what will resolve it is when both parties realize that it’s just not an effective tool. But unfortunately, I do think that it’s a more structural issue. This is a by-product of the extreme polarization that we’ve seen across politics, that has just grown in 30 years.

    It’s interesting you mentioned Veep, because one of the inspirations for the Jonah Ryan—if you remember, he threw a temper tantrum because he wasn’t invited to Selina Meyer’s portrait unveiling. That was loosely based off of a real-life situation, which was Newt Gingrich not being invited to sit in the front of Air Force One coming home from Yitzhak Rabin’s funeral in Israel in 1995, I think it was. His pique at being insulted that way by President Clinton led him to shut down the US government. That was a little bit of the inspiration for that Jonah Ryan scene.

    But if you just play out what’s happened in American politics since 1994, 1995, I mean, people thought that that was a bottom in terms of polarization and divisions between the parties, and we are so much further beyond that. I do think that there’s a glimmer of hope in the fact that the actual deal that approved the increase was one of the most bipartisan in recent history, and you had a very mixed vote of Republicans and Democrats that came together to get the debt ceiling passed. So, you always hope that maybe the fever breaks and this coalition emerges of more responsible members of Congress from both the Republican side and the Democratic side that come together to find resolution.

    Walsh: Yeah. Well, Eric, thank you so much for talking about this and for the insight and the detail you’ve been able to give on the whole question of the debt ceiling and the politics of it. I’m sure we’re going to end up coming back to you—hopefully not on a debt ceiling crisis—in two years from now. Thanks so much, Eric. And we’ll be talking soon, I’m sure.

    Lesser: Thanks, John.

    Ellsworth: And thank you, everyone, for tuning in to this episode of “In the Public Interest.” We hope you’ll join us for our next episode. If you enjoyed this podcast, please take a minute to share with a friend, and subscribe, rate and review us wherever you listen to your podcasts. See you next time on “In the Public Interest.” 

More from this series


Unless you are an existing client, before communicating with WilmerHale by e-mail (or otherwise), please read the Disclaimer referenced by this link.(The Disclaimer is also accessible from the opening of this website). As noted therein, until you have received from us a written statement that we represent you in a particular manner (an "engagement letter") you should not send to us any confidential information about any such matter. After we have undertaken representation of you concerning a matter, you will be our client, and we may thereafter exchange confidential information freely.

Thank you for your interest in WilmerHale.