Reuters, May 25: Washington During late-night negotiations to raise the government’s $31.4 trillion debt ceiling, White House and Republican negotiators made some progress, senior congressional Republican Kevin McCarthy told reporters on Thursday.
The Treasury Department has issued a warning that if an agreement is not reached, the government may not have enough money to meet all of its obligations as early as June 1. This could result in a potentially disastrous economic default.
Democratic President Joe Biden and Speaker of the House Kevin McCarthy disagree on anti-poverty program expenditures, taxes, and job requirements. However, following lengthy, fruitful meetings by their respective negotiating teams on Wednesday, both parties assert that they believe they can reach an understanding.
McCarthy told reporters, “We worked well past midnight last night.” “I believed we made some strides. There are still some unresolved problems, so I’ve ordered our team to work around the clock to address them.
McCarthy was planning to let legislators to leave Washington on Thursday for a weeklong Christmas break even as he was making that statement, with the condition that they must be prepared to return for a vote.
Time is of the essence. If the debt ceiling is not lifted, according to the Treasury Department, the United States may not have enough money to pay its debts as soon as June 1, seven days from now. A U.S. default may destabilize international financial markets and cause a recession in the country.
Treasury’s prediction is not 100% accurate, and some analysts in the private sector believe that the government might avoid defaulting for an additional week. As a result, several hardliners in McCarthy’s caucus have questioned the significance of the June 1 deadline.
When questioned about whether Treasury could pay its debts after June 1 without raising the debt ceiling, McCarthy responded, “There’s always money coming in. But I’ll let the Treasury secretary decide that. I always choose June 1 as the deadline.
The United States’ “AAA” credit rating has been placed on “negative watch,” according to ratings agency Fitch, due to escalating political conflicts over the nation’s debt ceiling. The United States was last placed on negative watch by Fitch in October 2013.
“The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges… and a growing debt burden signal downside risks to U.S. creditworthiness,” Fitch said in a statement on Wednesday.
The prolonged deadlock has alarmed Wall Street, dragging on American markets and raising borrowing costs for the country. Early on Thursday, the yield on U.S. Treasury bills that mature in early June increased, indicating investor apprehension.
SEVEN DAYS
Any accord must be approved by both the Democratically controlled Senate and the Republican-dominated House, which will take several days. To pay for the expense of the spending and tax cuts they have already passed, lawmakers frequently need to increase the self-imposed debt ceiling.
The second-ranking Republican in the House, Representative Steve Scalise, stated that any bill pertaining to raising the debt ceiling will be given three days to be read by lawmakers before being put to a vote. Any senator in the Senate has the power to postpone a vote for days.
The House was scheduled to leave for a weeklong Memorial Day holiday break on Thursday, but Scalise cautioned legislators to be prepared in case they were to be summoned back to Washington for a vote.
McCarthy has stressed that any agreement must limit future expenditure growth and reduce discretionary spending in order to curb the increase of the U.S. debt, which is already equivalent to the nation’s yearly economic output.
In order to assist reduce the debt, Biden has promised to keep spending at current levels in the coming year and has also suggested multiple tax increases.
If lawmakers are unable to come to an agreement, credit rating agency Moody’s indicated it may reevaluate its top grade for the US government. Competitor ratings agency S&P Global lowered its rating as a result of a previous debt ceiling conflict in 2011.
Both partisan lawmakers are hesitant to reach an agreement. Hardline Biden must consent to the significant expenditure cutbacks that House Republicans passed last month, they claim. Republicans are accused by some Democrats of sacrificing the economy to further an agenda that would otherwise fail.
At a news conference on Wednesday, Democratic Representative Ilhan Omar stated: “They are looking to waste time, play games, and make sure we default because they think that somehow that is going to be a political advantage.”
For months, Biden insisted he would not negotiate a debt ceiling increase, only to change his mind recently and start speaking with McCarthy.
The last time the federal government came this close to defaulting was in 2011, when there was a similar power imbalance in Washington, with a Republican-controlled House, a Democratic president, and a Senate majority.