US President Joe Biden is set to meet with congressional leaders from both parties on Tuesday amid a political deadlock over raising the debt limit of the world’s largest economy before it runs out of money to pay its bills.
High-risk White House meeting unlikely to produce immediate breakthrough, but will set stage for tax talks that will dominate US politics and potentially spill over into global financial markets in the coming weeks.
US Treasury Secretary Janet Yellen has warned that the US could face a historic and damaging default on its bonds in early June if Congress does not step in to raise the country’s debt ceiling by 31.4 billions of dollars. In an interview with ABC on Sunday, she called it “an economic and financial catastrophe which will be of our own making.”
Heading into the meeting, both the White House and Congressional Republicans were holding their positions.
Biden and Democratic leaders — including Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries — say Congress it needs to raise the debt limit unconditionally to pay off tax decisions previously made by lawmakers. They say negotiations on future tax and spending measures should be held separately.
But Republicans – including Kevin McCarthy, the Speaker of the House, and Mitch McConnell, the Senate Minority Leader – insist that the debt ceiling should be raised only as part of legislation that also cuts government spending.
“Both sides have a responsibility here, and both sides must come together to address our crisis,” said Mike Lawler, a Republican congressman from upstate New York City. “Yes, we have to raise the debt ceiling. Yes, we have to pay our previous debts. No, we cannot default. But we can’t continue to borrow and print at this level.”
It’s not yet clear which side might blink first. After Tuesday’s meeting with congressional leaders, Biden is expected to fly to Lawler’s district as part of a strategy to increase pressure on the moderate and pro-business wing of the party to force McCarthy to give ground.
So far, the Republicans have remained more united than expected in support of McCarthy’s hard line. Any concession to Biden would likely produce a backlash from the party’s hardline conservative right flank.
As the deadline approaches, the Biden administration has warned that there are no good alternatives to raising the debt limit. Some of the ideas being floated in the absence of a deal on Capitol Hill include ignoring the debt ceiling on constitutional grounds – because the 14th amendment says the “validity” of US government debt must not be “pushed under discussion” – or have the Treasury mint a $1 trillion coin, which would be used to meet government obligations.
Another possibility would be for Congress to pass a short-term extension or suspension of the limit, giving lawmakers more time to negotiate.
“A short-term extension would obviously buy a little more time here,” Lawler said. “But the president must show good faith negotiation with the President. Kicking the can along the way won’t change the construct here.
John Williams, president of the Federal Reserve Bank of New York, on Tuesday urged Congress and the Biden administration to “take responsibility” for raising the debt ceiling, warning in public remarks that otherwise it would push the US economy into “uncharted territory”.
The private sector estimates for the so-called X date are less dire than Yellen’s warning in early June, but reflect uncertainties about the expiration of any deal.
Economists from Deutsche Bank and Citigroup say the government is likely to have enough funds to cover the obligations through the end of July. Should cash receipts turn out to be higher than expected, Deutsche Bank said authorities might even have enough until July 31, after which large federal payments scheduled for August 1 would require a deal. However, the bank’s economists called the risks of an early maturity “significant”.
The Bipartisan Policy Center has indicated June 15 as a crucial date. If government revenues prove sufficient to meet obligations thus far, the think tank said the Treasury would likely be able to stave off a default through at least June 30, after which $145 billion could be freed up by suspending investment. in some pension funds.
“In such a scenario, the additional headroom created by these measures would support the Treasury’s ability to meet our obligations at least through early July and possibly several weeks beyond,” the BPC wrote in a report on Tuesday.
The Business Roundtable, a business advocacy group, said in a statement that finding a bipartisan solution to the crisis “couldn’t be more urgent”.
“The cost of a default, or even the threat of a default, is just too high,” he said.
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