As the president was forced to cut short his impending Asia vacation to address the problem, Joe Biden and Republican leaders began crucial negotiations on Tuesday to prevent a possibly disastrous US debt default.
On Wednesday, Biden will fly to Japan for the G7 meeting, but according to two sources, visits in Papua New Guinea and Australia have been canceled because of the home impasse over lifting US borrowing limits.
The Treasury has warned of dire implications if the nation runs out of money to pay its obligations, including the inability to pay federal employees and the likelihood of an increase in interest rates that would have an impact on companies, mortgages, and international markets.
Treasury Secretary Janet Yellen said on Monday that the United States might start defaulting on its obligations “potentially as early as June 1,” while the Congressional Budget Office predicted June 15.
– ‘POTENTIALLY DEVASTATING’ – Prior to the negotiations on Tuesday, the two parties were still deeply separated, with the Republicans demanding that Biden accept hefty expenditure cutbacks in return for their backing to lift the debt limit.
Republicans have been accused by Democrats of adopting extreme measures to advance their agenda before the so-called “X-date” at which the United States begins defaulting on its obligations. Democrats have been advocating for an increase in the borrowing limit that is “clean” and comes with no conditions.
More than 140 top US chief executives wrote to Biden and congressional leaders emphasising the need for a deal as an indication of rising concern about what would be the first-ever US debt default.
In a letter that was signed by the CEOs of Pfizer and Morgan Stanley among others, it was said that “we strongly urge that an agreement be reached swiftly so that the country can avoid this potentially devastating scenario.”
Biden, leading Congressional Republicans and Democrats, Vice President Kamala Harris, and others convened for the meeting on Tuesday at around 3:00 PM (1900 GMT).
– CUTTING OFF THE STALEMATE –
Both Biden and Kevin McCarthy, the speaker of the Republican-controlled House of Representatives, have pointed the finger at the opposition for the lack of progress achieved during the first round of negotiations last week.
At the US Capitol on Tuesday, McCarthy told reporters, “We’ve got to find a solution to the issue.
I just want to enter the meeting, resolve this difficulty, and reach a consensus.
But Biden said that the Republican Party was manipulating the economy.
“America cannot go into debt default. It would be disastrous if we did that, he said in a video message shared on Twitter, adding that default would probably send the US into a recession.
He said that it would “be devastating for America and quite frankly the entire world.”
In return for support for raising the debt limit, Republicans, who took back control of the House in the 2022 midterm elections, are demanding cutbacks of $130 billion from government agencies and programs.
This would keep expenditures in the 2024 fiscal year within the bounds of 2022.
Additionally, they seek to speed up initiatives for domestic energy production, make it easier to secure permissions for pipelines and refineries, and recover unused Covid relief money.
Before June 1, when the Treasury anticipates the US may run out of money, the House and Senate will still be in session for three more days.
In order to reach a settlement, several senators have recognized that they could have to postpone the holiday break that begins on Thursday for Memorial Day.
Democrats in Congress are starting to evaluate a number of options as the X-date approaches, including employing a mysterious legislative process to get around McCarthy.
They’ve also considered asking Biden to unilaterally increase the debt ceiling by using the 14th Amendment, which some legal experts say would empower the Treasury to just disregard the debt limitation.
But Biden has urged Republicans to back a clear rise in the debt limit and has warned that such a move may be legally challenged.