Biden and Republican lawmakers fail to reach debt limit agreement

In a recent meeting at the White House, US President Joe Biden emphasized that the country’s debt limit must be addressed, warning that a default “is not an option” for the world’s largest economy. Republican leaders Kevin McCarthy and Mitch McConnell met Biden, along with the top two congressional Democrats, Chuck Schumer and Hakeem Jeffries. However, no new developments were reported, and another meeting is scheduled for Friday.

President Biden underscored the importance of removing the threat of default, cautioning about the severe economic consequences that could follow. He also reassured that his attendance at the upcoming G7 meetings in Asia has not been affected by the deadlock over the debt ceiling.

The so-called debt ceiling refers to a limit on government borrowing designed to pay for existing bills. While the lifting of this cap is often routine, Republicans, who regained control of the House of Representatives in the 2022 midterm elections, have insisted on spending cuts as a condition for raising the limit from its current US$31.4 trillion maximum.

A similar deadlock in 2011 led to the United States losing its coveted AAA debt rating. Treasury Secretary Janet Yellen warned that the government could run out of funds as early as June 1, urging Congress to act swiftly to avoid “financial and economic chaos.”

Although McConnell reassured that “the United States is not going to default”, he emphasized that time is running out. In response, White House Press Secretary Karine Jean-Pierre reminded Republican lawmakers of their constitutional duty, urging them to act without conditions.

House Republicans have passed a plan to raise the borrowing cap while implementing significant government spending cuts, which Democrats have dubbed the “Default on America Act”. Forty-three Republicans in the Senate also pledged to create legislative obstacles to any attempt to raise the debt ceiling without “substantive spending and budget reforms”.

Failure to resolve the debt limit impasse may have political implications for President Biden as he begins his re-election campaign. Furthermore, it may trigger financial market uncertainty, affecting groups like Social Security beneficiaries or Medicare providers.

A recent report by Moody’s Analytics indicated that the Treasury Department may exhaust its accounting measures by June 8, providing little time for Democrats and Republicans to reach an agreement. Nancy Vanden Houten of Oxford Economics suggested that if lawmakers are still at a stalemate as the debt limit deadline approaches, a compromise bill might be negotiated. However, she added that risks are comparatively higher than in previous debt limit standoffs, reports Channel News Asia.