A productive meeting, but not too much. United States President Joe Biden and House Speaker Kevin McCarthy met at the White House this Monday to discuss raising the debt ceiling. They still don’t have an agreement, but they have promised to be in constant touch and to speak every day to try to reach them before Date X when the federal government cannot meet its payment obligations.
Treasury Secretary Janet Yellen said in a letter earlier this month that her best estimate is that the government will not be able to meet all of its commitments by early June “and possibly as early as June 1” if Congress fails to raise or increase of interest rates will raise the debt ceiling before that date. He later confirmed these dates as “probable” in another letter dated May 15. This Monday he went one step further, hinting that it was “highly likely” that money would run out by those dates, always leaving open the possibility that it might last longer.
There is therefore little more than a week left for the negotiations and the positions are still a long way off, because although this Monday’s meeting was productive, not much progress could be made. “We literally talked about where we had disagreements and ideas,” McCarthy said in an appearance to reporters. “It’s productive for me. No progress but productive.”
For now, the only consensus seems to be on the adjective to label the meeting, also used by Biden: “I just wrapped a productive meeting with President McCarthy on the need to prevent a default and prevent catastrophe for our economy.” , he said . it is a statement. “We have reiterated that default is out of the question and that the only way forward is to reach a good faith bipartisan agreement.”
For both, this marks an improvement in tone from their recent statements. Biden, in particular, this Sunday focused on Hiroshima, Japan, where he attended the G7 meeting where he believed some extremist Republicans were ready to default in order to damage the economy, hold him accountable and avoid his re-election. . “I can’t guarantee they won’t force a default by doing something outrageous. I can’t guarantee that,” he said.
At Monday’s meeting, Biden and McCarthy faced each other without the presence of the other congressional leaders who had attended previous meetings. If there is an agreement between the two, there will be an agreement. The role of the other leaders is secondary in the negotiations. The question is that despite Monday’s good words, the positions are still very far apart.
McCarthy is demanding spending cuts that the White House won’t accept. Biden would prefer to reduce the deficit by also increasing revenue, especially with increased tax pressures on businesses and higher incomes. But neither McCarthy nor, above all, the hardest factions of the Republican faction in the House of Representatives are willing to compromise.
“Republicans need to stick firmly to the debt ceiling to turn spending back into reality and restore financial sanity in Washington. We spend over $100 billion in excess of federal tax revenue EVERY MONTH. Washington has a spending problem, not a revenue problem.” tweeted the House Freedom Caucus, It gathers some of the least supportive of McCarthy and made tough negotiations on the debt ceiling a condition.
narrow edge
This narrows the House Speaker’s room for maneuver and makes negotiations more difficult. The Democrats also have a left wing, particularly in the Senate, that is unlikely to accept big cuts.
Meanwhile, the clock keeps ticking. Any agreement must be enshrined in law, which will also take at least a day or two. In order to achieve an increase in the spending ceiling by June 1st, the agreement must therefore be reached this week.
Biden has abandoned his original strategy of demanding an unconditional debt ceiling hike and is finally negotiating in what appears to be a repeat of the nightmare he endured as Barack Obama’s vice president in 2011. McCarthy has done it again It is clear that Biden can say goodbye to this “clean” solution.
“Let me be clear. No, we will never vote on a clean debt ceiling [de condiciones]. A clear debt ceiling could not be passed in the Senate. Neither in the chamber. So why waste time on something that won’t go away instead of finding a solution to the problem? “We’re too close to give up,” the Speaker of the House told reporters in the Capitol on Monday.
Republicans want to cut spending next year to 2022 levels, but Democrats have proposed leaving it at 2023 levels. Republicans originally wanted a 10-year spending cap, but the most recent proposal lowered it to six years. The White House wants a two-year budget deal. Republicans also want to mandate labor requirements for health and food aid programs, but the Biden administration warns millions of people could lose their insurance coverage. McCarthy also wants to cut funding from the IRS.
A more catastrophic impact on the economy would be a default on government debt and outstanding securities not maturing. However, there is no clear date for when this would happen if there was no agreement. The fact that the United States government does not have the resources to meet all of its obligations does not necessarily mean that it will be unable to service its debt in the first place.
The Treasury can prioritize these obligations and implement a range of strategies to avoid defaulting on debt (from issuing a high-denomination platinum coin to playing with the face value and interest of the debt). However, the risk of default is already affecting markets, and even more so when bills go unpaid.
The White House Council of Economic Advisers released a report saying the blockade threat is already having an effect; A default, however brief, would result in a costly bill, and a longer default would cut third-quarter GDP by 1.5% (at a quarterly annual rate of 6.1%) and raise interest rates. Unemployment five points, wiping out 8.3 million jobs.
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