WASHINGTON, May 10 — A high-stakes meeting between President Joe Biden and key Republican and Democratic lawmakers yesterday yielded no breakthrough on the impasse over the US debt limit, but the group decided to reconvene later this week.
Republican House Speaker Kevin McCarthy and Mitch McConnell, the Senate minority leader, met with Biden at the White House in the latest round of a power struggle threatening massive consequences for the world’s largest economy.
The Republicans were also joined by the top two congressional Democrats: Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries.
McCarthy said after the talks that he “didn’t see any new movement,” although the four and Biden will meet again on Friday.
The lifting of the so-called debt ceiling — a limit on government borrowing to pay for bills already incurred — is often routine.
But budget-minded Republicans, who won control of the House of Representatives in the 2022 midterm elections, have vowed to only raise the limit from its current US$31.4 trillion maximum if spending curbs are enacted.
After the meeting, Jeffries said that “extreme” Republicans “have indicated that they are willing to take us down the path of default.”
“That is reckless, irresponsible, and extreme,” he said.
A similar impasse in 2011 resulted in the United States losing the coveted AAA debt rating.
Time is critical. On Sunday, Treasury Secretary Janet Yellen warned that unless Congress acts in the coming weeks, “financial and economic chaos would ensue”.
Yellen has also had conversations with CEOs to discuss the dangers of brinkmanship, a source familiar with the matter confirmed to AFP.
Running out of time
While McConnell told reporters after the meeting that “the United States is not going to default,” he stressed that “we are running out of time”.
White House Press Secretary Karine Jean-Pierre argued before the Oval Office talks that it is the Republican lawmakers’ constitutional duty to act.
“The exit ramp for them is to do their job,” she said, referring to raising the debt ceiling without condition.
But McCarthy maintained Tuesday that House Republicans were doing their jobs by passing a plan that raises the borrowing limit, while instituting major government spending cuts. He instead accused Biden of holding the country “hostage”.
Biden has repeatedly called for a “clean” lifting of the US borrowing limit, arguing that the deficit spending has already been approved by Congress and is therefore not up for debate.
Meanwhile, Democrats have referred to the plan passed by House Republicans as the “Default on America Act”.
The Senate is bracing for a clash too, as 43 Republicans in the Democratic-controlled chamber signed a letter over the weekend, pledging to impose legislative hurdles to any attempt to raise the debt ceiling “without substantive spending and budget reforms”.
It remains unclear when the government will run out of funds, but the Treasury has warned it could happen as early as June 1.
In addition to triggering Wall Street turmoil, failure to address the debt limit impasse may also impact Biden politically as he forges ahead into a re-election campaign.
Uncertainties ahead
Should the United States be unable to meet all its obligations, the Treasury would likely prioritise debt and interest payments, analysts said.
That could mean delays in doling out funds to politically sensitive groups, such as Social Security beneficiaries or Medicare providers.
Financial markets would also be rattled by the uncertainty.
In a recent report, Moody’s Analytics projected that the most likely date the Treasury Department will exhaust its accounting measures is June 8, signalling “precious little time” for Democrats and Republicans to reach agreement.
This date means Treasury payments will likely be disrupted for a few days “until a mid-June surge of tax payments materialises” and helps with revenue flows.
But financial markets are sure to react negatively, with the consequent selloff in equity markets likely to “catalyse subsequent action on Capitol Hill.”
“We think lawmakers will try to negotiate a compromise bill first if they are still at a stalemate when the debt limit is at risk of being breached, which seems likely,” said Nancy Vanden Houten of Oxford Economics on Tuesday.
In an earlier interview with AFP, she added that “risks are certainly elevated compared to prior debt limit standoffs.” —AFP
