Biden, McCarthy aim to break US debt ceiling deadlock as default crisis looms

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WASHINGTON – President Joe Biden and leading Republicans and Democrats from Congress will sit together this week to try to resolve a three-month stalemate over the $31.4 trillion debt ceiling. and avoid a serious default before the end of May.

The Democratic president is calling on lawmakers to increase the federal government’s self-imposed borrowing limit without conditions. Republican House Speaker Kevin McCarthy has said his chamber will not pass any deal that doesn’t cut spending to address the growing budget deficit.

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Biden will meet with McCarthy on Tuesday at the White House for the first time since February 1, with Senate Majority Leader Chuck Schumer and top Republican Mitch McConnell in the Senate. Hakeem Jeffries of the top House Democrats will also join the negotiations.

Analysts do not expect an immediate deal to avert a historic default, which the Treasury Department has warned could happen as soon as June 1. Forecasters warn that a default could plunge the US economy into a deep recession with unemployment soaring.

But the start of active negotiations could ease investor sentiment, who last week forced the federal government to pay its highest interest rate ever on debt. practice for a month.

“We have a lot of bubbling waters now. We need to reassure them. Some of that might come from saying, ‘We’ve found the points of agreement, we’ve found the points of disagreement, we’ll get back together and find a solution”. Republican congressman Thom Tillis told reporters late yesterday. week.

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Outside observers including those involved in previous financial negotiations and business lobbying groups have come up with a range of potential compromises that largely revolve around extending the debt ceiling first. presidential election in November 2024 during a spending freeze.

Legislative deadlock is nothing new in a country with deep partisan divisions, where Republicans have a meager House majority and Biden’s Democrats control the Senate with a meager two votes. .

But the risk of a debt ceiling strike is much higher than the budget debates that have forced the federal government to shut down a third of times in the past decade.

“That was painful. It is difficult. But it’s not a disaster,” said Democratic Senator Chris Coons, referring to past shutdowns, adding, “a default would be catastrophic.”

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Biden has insisted for months that raising the debt ceiling, a move needed to cover spending costs and tax cuts passed by Congress, should not be involved in budget negotiations.

“The two are completely unrelated,” Biden said Friday. “They are two separate issues, two. Let’s make it frank.

DURATION Uncertain

McCarthy has urged Democrats to come up with a plan of their own or pass a package approved by the House that would drastically cut spending over the next decade and impose new job requirements on recipients in the coming decade. welfare programs in exchange for raising the debt ceiling by $1.5 trillion or until the end of March.

Biden in March proposed a budget that would cut the deficit by $3 trillion over 10 years by raising taxes on companies and those earning more than $400,000 a year.

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Lawmakers face an uncertain deadline: The Treasury Department warned last week that it may not be able to pay all of its bills as soon as June 1, but it could take a long time. another week.

The Bipartisan Policy Center, a think tank specializing in budget issues, is expected to publish its own revised forecast on Tuesday, which could further derail negotiations. judge if it is later than the Ministry of Finance.

The last time the nation was this close to default was in 2011, with the same model of divided government – a Democratic and Senate president with a Republican-led House of Representatives.

Congress eventually came in and averted default, but the economy suffered severe shocks, including the first downgrade of the top U.S. credit rating and a wave of sell off large stocks.

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Deadlock worries have already begun to weigh on financial markets, but default will have a much more immediate impact on average Americans.

“What for people every day is a drop in retirement savings, an increase in interest rates can affect their monthly car or home payments – that will hurt a lot of people, and hurt most low- and middle-income people,” said Democratic Senator Tim Kaine.

Adding to the challenge of reaching a deal, McCarthy agreed to change House rules to allow only one member to call for his ouster as speaker, which gives greater power to the House of Representatives. hardliners, including about three dozen members of the House Liberal Group.

(Reporting by David Morgan, additional reporting by Ann Saphir, Dan Burns, Trevor Hunnicutt and Moira Warburton; Editing by Scott Malone and Deepa Babington)