The US debt ceiling drama is heading into what appears to be a crunch week, with President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) on schedule to meet Monday in the hopes of breaking the stalemate.
The administration of Democratic POTUS Biden has been in a protracted tussle with Republicans on raising the debt ceiling, which currently stands at $31.4 trillion. The US hit the statutory debt limit back in January, and has since been resorting to "extraordinary measures" to pay the bills. But Treasury Secretary Janet Yellen reiterated late on Sunday that June 1 remained the hard deadline to raise the debt ceiling or risk defaulting on its obligations, otherwise there would be “hard choices to make.”
Debt Ceiling Tug-of-War
Much as Biden might have wanted to take his mind off the standoff with Republicans, and focus on some typical Washington weight-throwing on the global arena, spewing rhetoric about the US geared to “continue to provide both economic and security aid to Ukraine as long as it requires,” or “helping Taiwan” defend itself from an alleged China attack, trouble on the home front followed him to the G7 summit in Japan.
There was a flurry of activity back in Washington while Biden was away, but the President appeared to be kept in the loop, participating in a Zoom call with advisers tasked with leading negotiations with the Republicans.
The past few days saw more debt ceiling tug-of-war. On May 19 Congressional Republicans walked out of negotiations that hit another road bump over federal spending cuts that the Democrats rejected. Hours later, talks got back on track, but on Saturday, Republicans found fault with the proposal to limit spending in 2024 for military, along with a swathe of domestic programs. Finally, House Speaker McCarthy conceded they needed to wait for Biden to return before attempting to make headway.
"I think that we can reach an agreement. Part of what I've been arguing from the beginning is a need to consider the tax structure as well as cutting spending. I'm willing to cut spending, and I proposed cuts and spending of over a trillion dollars," Biden said during a press conference before heading home, adding that, "I can't guarantee that they [Republicans] wouldn't force a default by doing something outrageous."
Biden and McCarthy spoke on the phone during the President's flight back to Washington on Air Force One. Questioned by reporters at the US Capitol on Sunday about the call, McCarthy said:
"Our teams are talking today and we're setting (sic) to have a meeting tomorrow. That's better than it was earlier. So, yes."
The House Speaker added:
"There's no agreement. We're still apart. What I'm looking at are where our differences are and how could we solve those, and I felt that part was productive.".
Joe Biden also said the call with McCarthy, “went well,” adding, “We’ll talk tomorrow.”
According to senior White House advisor Steve Ricchetti, both sides’ staff members spent over two hours negotiating in McCarthy's office in the Capitol on Sunday evening, adding, "We'll keep working tonight."
Indeed, the remarks both by Biden and McCarthy appear to strike a more positive tonality after heated rhetoric of the last few weeks. Joe Biden had indicated that Republican lawmakers were not averse to seeing the US default on its debt just to put a spoke in the wheel of his re-election in 2024.
According to McCarthy, Republicans were prepared to back an increase in the defense budget tied in with cutting overall spending. Tax cuts that were passed under former President Donald Trump were not included in the debt ceiling talks, he added. The Biden administration reportedly proposed ensuring that non-defense discretionary spending remained flat next year, with no room for reductions or increases. Non-defense discretionary spending is controlled by lawmakers through appropriation acts, specifying how much money can be obligated for certain government programs.
Joe Biden has been insisting a “clean” debt ceiling bill was needed, without mandated budget cuts in the 2024 budget - the typical way the debt ceiling is raised. However, he has recently hinted at a willingness to negotiate with the deadline looming.
Bipartisan support is imperative as Republicans hold a slim majority in the House, while Biden's Democrats have narrow control of the Senate. With time running out, Monday's meeting between Biden and McCarthy comes just 10 days before the Treasury's deadline.
Economic experts have been consistently warning that a government debt default would be disastrous both for the US economy and international markets.
Indeed, the concerns about default are weighing on markets already. Wall Street futures and Asian stocks declined on Monday. S&P 500 futures shed 0.1% in early trade, while Nasdaq futures traded flat. MSCI's broadest index of Asia-Pacific shares outside Japan was also last flat, while Japan's Nikkei traded lower by 0.11%. Hong Kong’s Hang Seng index similarly traded lower by about 40 points.