The Looming Threat of US Default: President Biden and House Speaker McCarthy Continue Negotiations over Debt Ceiling
President Biden and House Speaker Kevin McCarthy met at the White House on Monday to continue negotiations over the debt limit. Despite not reaching a deal, the two expressed optimism that an agreement can be struck to avoid an unprecedented default on the US's debt. Treasury Secretary Janet Yellen has warned that the country could default on its payments as soon as June 1, which could send the US into a recession and rattle the global economy. At least 11 Senate Democrats are urging Biden to invoke his constitutional authority under the 14th Amendment to raise the nation’s debt limit without having to go through Congress. Some members of the Congressional Progressive Caucus are also calling on Biden to use the 14th Amendment to tackle the debt ceiling unilaterally.
The debt ceiling is a restriction Congress has put in place since 1917 on how much money the federal government can borrow to pay its bills, which has been raised 78 times since 1960. If Congress fails to increase the debt limit, the US government will default on its bills, a historic first, with likely catastrophic consequences.
Republicans have made significant demands on federal agency spending caps and other means to reduce annual deficits, ignoring President Biden’s plea to pass a “clean” debt ceiling hike. Following several months of inactivity, the White House and McCarthy reached an agreement to enter into talks regarding a possible spending agreement that would be linked to an elevation of the borrowing ceiling. Republicans are advocating for a reduction in the duration of the proposed spending cap on the negotiating table, from 10 years to six. Democrats aim to restrict spending limits to a two-year agreement, enabling government expenses to match inflation.
Biden has said he’s “considering” using the 14th Amendment, which states that the “validity of the public debt of the United States … shall not be questioned,” a provision that some legal scholars argue would enable him to address the national debt on his own. However, Biden acknowledges that the constitutionality of such an action would be disputed.
The mere prospect of default threatens to breed economic turmoil long before the Treasury Department actually runs out of cash. Fitch Ratings and Moody's Investors Service have warned that they may subject the nation's credit to scrutiny if Washington approaches the brink of default, which is one of the most concerning scenarios. In 2011, a similar standoff between House Republicans and President Barack Obama prompted S&P to lower its rating of US debt, sending the Dow plummeting and ultimately costing taxpayers more than $1 billion in higher borrowing costs, according to the Government Accountability Office.
The window of opportunity to discover a resolution is rapidly closing. If the US government does not increase the debt limit, it will be the first time in history that it defaults on its bills, which could lead to disastrous outcomes. If federal workers were to be furloughed, it would lead to a probable recession in the US economy, causing a crash in global stock markets. It remains to be seen whether Biden and McCarthy can reach a deal that has the votes to pass the Republican-led House and Democratic-controlled Senate in a short period of time.
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