White House and McCarthy dismiss short-term fix for debt ceiling
The White House and congressional Republicans dismissed calls for a short-term solution to the US debt limit crisis, saying there was no alternative to a deal in the coming weeks to avert a damaging default on America’s bonds.
The comments from both sides of the political stand-off came as President Joe Biden prepared to meet congressional leaders, including Kevin McCarthy, the Republican Speaker of the House, to discuss fiscal stand-off.
The high-stakes gathering at the White House, which started at about 4pm on Tuesday, is unlikely to yield any immediate breakthrough, but it will set the stage for negotiations that will dominate US politics and potentially reverberate around global financial markets over the coming weeks.
US Treasury secretary Janet Yellen has warned that the US could face a historic and damaging default on its bonds in early June if Congress fails to act to raise the country’s $31.4tn debt ceiling.
With no deal in sight, some lawmakers have suggested that a short-term suspension or increase of the borrowing limit until the end of September to allow more time for talks would be needed, but both sides rejected such a suggestion on Tuesday.
“We shouldn’t kick the vote. Let’s just get this done now,” McCarthy told reporters.
Karine Jean-Pierre, the White House press secretary, said: “A short-term extension is not our plan, either. That is not our plan. This is a man-made crisis that the speaker is leading.”
Biden and Democratic leaders — including Chuck Schumer, the Senate majority leader, and Hakeem Jeffries, the House minority leader — say Congress needs to raise the debt limit without conditions in order to pay for fiscal decisions previously made by lawmakers. They say negotiations over future tax and spending measures should be held separately.
But Republicans — including McCarthy and Mitch McConnell, the Senate minority leader — insist the debt ceiling should only be raised as part of legislation that also slashes government spending.
“Both parties bear responsibility here, and both parties need to come together to deal with our crisis,” said Mike Lawler, a Republican congressman from the northern suburbs of New York City. “Yes, we have to lift the debt ceiling. Yes, we have to pay our previous debts incurred. No, we cannot default. But we cannot continue to borrow and print at these levels.”
It is still far from clear which side might blink first. After Tuesday’s meeting with congressional leaders, Biden is due to fly to Lawler’s district as part of a strategy to pile pressure on the moderate, business-friendly wing of the party to force McCarthy to yield some ground.
Republicans have remained more united than expected in support of McCarthy’s hardline stance. Any concessions to Biden would probably yield a backlash from the more intransigent conservative right flank of the party.
As the deadline approaches, the Biden administration has warned that there are no good alternatives to raising the debt limit. Some of the ideas that have been floated in the absence of a deal on Capitol Hill include ignoring the borrowing ceiling on constitutional grounds — because the 14th amendment states that the “validity” of US public debt shall not be “questioned” — or having the Treasury mint a $1tn coin, which would be used to satisfy the government’s obligations.
John Williams, president of the Federal Reserve Bank of New York, on Tuesday urged Congress and the Biden administration to “take responsibility” in raising the debt ceiling, warning in public remarks that failure to do so would push the US economy into “uncharted territory”.
Private-sector estimates for the so-called X-date are less dire than Yellen’s warning of early June, but they reflect uncertainties surrounding the deadline for any deal.
Economists at Deutsche Bank and Citigroup maintain that the government is likely to have sufficient funds to cover obligations until late July. Should cash receipts prove higher than expected, Deutsche Bank said authorities could even have enough until July 31, after which large federal payments expected to come due on August 1 would necessitate a deal. Still, the bank’s economists characterised the risks of an earlier deadline as “meaningful”.
The Bipartisan Policy Center pointed to June 15 as a crucial date. If government revenues proved sufficient to meet obligations until then, the think-tank said the Treasury would probably be able to ward off a default until at least June 30, after which $145bn could be freed up by suspending investments in some retirement funds.
“In such a scenario, the additional room created by these measures would support Treasury’s ability to make good on our obligations through at least early July and perhaps several weeks beyond,” the BPC wrote in a report on Tuesday.
The Business Roundtable, a corporate lobbying group, said in a statement that finding a bipartisan resolution to the crisis “could not be more urgent”.
“The cost of a default, or even the threat of a default, is simply too high,” it said.