WASHINGTON: President Joe Biden and Republican leaders are set to reconvene on Tuesday (May 16) for crunch talks on raising United States borrowing limits, with a possible debt default now just weeks away.
The Treasury has warned of “catastrophic” economic consequences if the US runs out of cash to pay its bills, which would leave it unable to pay federal workers and trigger a likely surge in interest rates with knock-on effects for businesses and mortgage holders across the country – and financial markets around the world.
Fresh data reinforces the prospect of default “potentially as early as June 1”, Treasury Secretary Janet Yellen warned on Monday in a letter to House Speaker Kevin McCarthy.
The two parties remain sharply divided on the issue, with Republicans insisting Biden agree to significant spending cuts in exchange for their support to raise the debt ceiling.
Democrats have been calling for a “clean” increase of the borrowing limit with no strings attached, and have accused Republicans of using extreme tactics to push their political agenda ahead of the so-called “X-date” at which the US starts defaulting on its debts.
The non-partisan Congressional Budget Office forecasts that the X-date could be reached by Jun 15.
BREAKING THE STALEMATE
Little progress was made in the first round of talks between Biden and congressional leaders last week, with both sides blaming each other for the stalemate.
A second round of talks scheduled for last Friday was postponed, giving House, Senate and White House negotiators time to meet over the weekend in a bid to make progress, US media reported.
On Monday, McCarthy said that Democrats were still not taking the debt talks seriously.
“I still think we’re far apart,” he told reporters in the US Capitol, adding “it doesn’t seem to me yet that they want a deal”.
Republicans, who regained control of the House in the 2022 midterm elections, are using their newfound political clout to demand deep cuts of about US$130 billion from federal agencies and programmes in exchange for their support for lifting the debt ceiling. This would limit spending in the 2024 fiscal year to 2022 levels.
They also want to expedite domestic energy production projects, simplify the process for obtaining permits for pipelines and refineries, claw back unspent COVID-19 relief funding and impose work requirements for social programmes.
Biden has rebuffed many of these proposals, accusing Republicans of “holding the economy hostage” to further their political objectives.