Most likely, the only way this ends is with a significant meltdown in financial markets that forces the hand of Congress.
Following the election, Yuval Levin observed that the dynamics of the new Congress would significantly complicate efforts to raise the debt ceiling. The chaotic race for House speaker makes the possibility of the kind of breach that he wrote about much more likely.
Going into the Congress, there were already all the makings of a standoff. Republicans and Democrats came away from the 2011 impasse learning much different lessons. Republican hardliners learned that even with Democrats in control of the Senate and White House, the party could use the debt limit as leverage to extract concessions. But the Left, and most Democrats, have come to believe that Barack Obama made a catastrophic mistake by agreeing to negotiate with John Boehner and House Republicans. In this now prevailing view among Democrats, the party should not give any ground in exchange for getting Republicans to agree to something seen as basic responsible governance.
What this means is that Republicans are going to make demands in exchange for raising the limit, and Democrats are going to dig in and say they will not discuss any concessions. The House speaker’s race is only going to make it a bigger problem.
While nobody has any idea as of this writing how the speaker’s race will conclude, we know there are three basic possibilities: 1) Kevin McCarthy survives, significantly weakened, having required multiple ballots to get across the finish line. 2) McCarthy drops out, and some other person emerges who can straddle the establishment-populist line. This person will get into power knowing that McCarthy was taken out for the perception that he was too cozy with the Washington establishment, and will know that the hardliners can take him or her out at any time. 3) A pure populist somehow takes charge on the umpteenth ballot whose entire brand is rooted in the idea of avoiding the sort of compromises that would be necessary for any debt-limit increase.
Given that the Republican House speaker, whoever it is, will only be able to lose four votes, any effort to raise the debt limit would involve a bill that could pass with significant Democratic support. It’s hard to see how any House speaker will be in a position to pass a clean debt-ceiling increase without risking a mutiny, something that the protracted speaker’s race confirms that enough hardline members are willing to execute. And it’s hard to see Democrats voting for any sort of debt-ceiling increase that’s tied to concessions on immigration, spending cuts, or any other demands Republicans might want.
Most likely, the only way this ends is with a significant meltdown in financial markets that forces the hand of Congress.