Encouraging signs of a deal between Biden and McCarthy to raise the debt ceiling
Signs of hope emerged in the ongoing discussions between the White House and Republicans in Congress about a possible deal to raise the US government’s debt ceiling of $31.4 trillion.
A US official told reporters that talks were continuing to finalize a deal that would allow the debt ceiling to be raised for two years, in exchange for spending restrictions on several government programmes. He explained that the negotiators on the part of President Biden, and the negotiators on the part of House Speaker Kevin McCarthy, are close to reaching an agreement on major contentious issues, such as the spending ceiling and financing the Internal Revenue Service, and the army, but the remaining contentious point is related to the tightening of anti-poverty programs.
And with Biden traveling to Camp David on Friday evening, and members of the US Congress traveling to spend the Memorial Day vacation, and the approach of June 1, the date that US Treasury Secretary Janet Yellen warned about as a date for running out of cash to pay off debts, the urgency of reaching a solution is growing. A deal so that the United States does not face a default catastrophe in less than a week.
Leaks to Reuters and the New York Times indicated that the potential deal will achieve victories for both parties, according to which the debt ceiling will be raised for a period of two years until after the US presidential elections in 2024, and in return strict restrictions will be imposed on spending related to the army and veterans’ allowances, and it will be allowed With only a 3 percent increase in defense spending for 2024 without any increase in non-defense spending.
The deal includes upgrading power grids and subsidizing renewable energy projects, an important goal of Biden’s record, and in exchange allowing more fossil fuel permits for major oil companies backed by the Republican Party.
An official said the deal could also reduce funding for the IRS. Republicans are seeking to undo a big budget hike for the tax agency that Democrats approved last year to boost spending, which would help boost revenues and reduce the deficit.
The deal will leave many other details to be ironed out in the coming weeks and months. House Speaker Kevin McCarthy told reporters (Friday) that the two sides have made progress, indicating that there is serious work to conclude a deal to raise the debt ceiling before the looming deadline. He stressed that there was still a lot of work to be done.
Under this potential deal, the Republicans will be able to promote because they have succeeded in cutting federal spending, and the Democrats can promote because they have succeeded in preventing large cuts in spending. Each side will have to persuade enough members of its party in a narrowly divided Congress to vote on any final deal.
“What we’re talking about now is a middle ground where Democrats and Republicans can come together,” Representative Sharis Davis, a Kansas Democrat, told Bloomberg.
* Monetary Fund
For her part, the Director of the International Monetary Fund, Kristalina Georgieva, urged the United States to make unremitting efforts to reduce public debt. And she indicated in a press conference (Friday) evening that the IMF was keen to invite the parties to reach a solution to the debt ceiling as soon as possible, and said that delay in doing so may create avoidable risks.
And a statement from the International Monetary Fund (IMF) said (Friday) that the “brinkmanship” policy regarding the federal debt ceiling could generate risks for both the United States and the global economy, at a time when there are already clear pressures. In its statement on the Article IV consultations concerned with evaluating the economic developments of a country, the Fund stated that in order to avoid exacerbating downside risks in the markets, Congress must raise the debt ceiling immediately.
Retraction of the Fourteenth Amendment
US Deputy Secretary of the Treasury Wally Adimo had indicated that Biden would not resort to the Fourteenth Amendment to the Constitution to continue raising the debt ceiling. And he said, in statements to CNN, on Friday morning, that Biden does not see that this can solve the problem. This was confirmed by White House officials, who noted that the Fourteenth Amendment’s provision that the validity of the US public debt should not be questioned is not a viable way to circumvent the arduous debt-ceiling negotiations with Republicans.
The standoff has spooked investors and pushed up government borrowing costs by $80 million so far, according to Wali Adeyou.
Biden confirmed (Thursday) evening that concluding a deal between the two parties is the only option for the current confrontation, promising that his administration had held fruitful talks with the Republican Party and that the two sides were making progress.
The Treasury warned that it may not be able to cover its obligations as soon as June 1, but it also laid out plans to sell $119 billion in debt maturing by that date, suggesting it is not a deadline fraught with immediate risks.
A number of credit rating agencies said they had placed the United States on review for a possible downgrade, which would raise borrowing costs and undermine the United States’ position as the backbone of the global financial system. A similar standoff in 2011 led Standard & Poor’s to downgrade its US debt rating.