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Wednesday, Jul 24, 2024

As a default crisis looms, Biden and McCarthy hope to break the US debt-ceiling impasse

As a default crisis looms, Biden and McCarthy hope to break the US debt-ceiling impasse

President Joe Biden and top Republicans and Democrats in Congress are scheduled to meet this week in an attempt to break a three-month deadlock over the $31.4 trillion US debt ceiling and prevent a devastating default before the end of May.
President Joe Biden and top Republicans and Democrats in Congress are scheduled to meet this week in an attempt to break a three-month deadlock over the $31.4 trillion US debt ceiling and prevent a devastating default before the end of May.

The Democratic president is urging Congress to increase the federal government's self-imposed borrowing cap without conditions. Republican House Speaker Kevin McCarthy has stated that any agreement that does not include spending cuts to address the nation's increasing fiscal deficit will be rejected.
For the first time since February 1, Biden will meet with McCarthy at the White House on Tuesday, along with Senate Majority Leader Chuck Schumer and senior Senate Republican Mitch McConnell. Hakeem Jeffries, the top Democrat in the House, will also participate in the negotiations.

Analysts do not anticipate a speedy agreement to avert a historic default, which the Treasury Department has warned may occur as early as June 1. Forecasters warn that a default would likely plunge the US economy into a catastrophic recession, with unemployment skyrocketing.

However, the start of active talks may calm the worries of investors who compelled the federal government to pay its highest interest rate ever for a one-month debt issue last week.

"We now have a lot of foamy water. We must calm them down. "Some of that could simply be saying, 'We've found areas of agreement, areas of disagreement, we're going to get back together and work on a solution,'" Republican Senator Thom Tillis told reporters late last week.

Outside observers, including people who have participated in previous budget negotiations and industry lobbying groups, have proposed a variety of potential agreements, the most of which revolve around extending the debt ceiling through the November 2024 presidential elections while freezing spending.

Legislative gridlock is nothing new in a country divided by profound partisanship, where Republicans have a razor-thin House majority and Biden's Democrats control the Senate by a mere two votes.

The stakes of the debt-ceiling dispute, though, are substantially higher than the budgetary debates that have forced partial government shutdowns three times in the last decade.

"That is excruciating. It is challenging. But, unlike previous shutdowns, it is not disastrous," Democratic Senator Chris Coons said, adding that "default would be devastating."

For months, Biden has emphasized that extending the debt ceiling, which is required to cover the expenses of already approved spending and tax cuts by Congress, should not be linked to budget talks.

"The two are totally unrelated," Biden stated on Friday. "They're two distinct issues." Let's get one thing straight."

DEADLINE IS UNCERTAIN
McCarthy has urged Democrats to either offer their own plan or vote on a House-approved package that would impose sharp spending cuts over the next decade and new work requirements on benefit recipients in exchange for raising the debt ceiling by $1.5 trillion or until the end of March.

Biden submitted a budget in March that aimed to reduce deficits by $3 trillion over ten years by boosting taxes on corporations and individuals earning more than $400,000 per year.

Lawmakers confront an uncertain deadline: the Treasury warned last week that it may be unable to pay all of its debts by June 1, but may be able to do so for several weeks beyond.

The Bipartisan Policy Center, a research tank specializing on budget issues, is scheduled to produce its own revised forecast on Tuesday, which may complicate negotiations further if it is released later than Treasury's.

The last time the country came this close to default was in 2011, when the country had a divided government with a Democratic president and Senate and a Republican-led House.

Congress eventually came around and avoided default, but the economy was hit hard, including the first-ever reduction of the US' top-tier credit rating and a severe stock selloff.

Financial markets have already begun to feel the strain of the standoff, but a default would have a far more direct impact on ordinary Americans.

"The thing for everyday folks is that declines in retirement savings, increases in interest rates that could affect their monthly payments for cars or houses - it's just going to hurt a lot of people, and it's going to hurt low- and middle-income people the most," Democratic Senator Tim Kaine said.

Adding to the difficulty of reaching an agreement, McCarthy agreed to a change in House rules that permits only one member to call for his ouster as speaker, giving hardliners more authority, including the roughly three dozen members of the House Freedom Caucus.
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