There are ten days left before the US government defaults, and there is still no agreement to prevent it.
Joe Biden and Republican Opposition Speaker of the House of Representatives Kevin McCarthy have made an effort to show they believe the crisis can be overcome and a default in the United States can be avoided, they have adopted a more conciliatory tone, although the huge gap between them has not been bridged, at least not yet.
“I have completed a productive meeting with McCarthy,” the US president said in a statement released by his administration, calling for “good faith” negotiations to find a budget compromise as soon as possible.
He acknowledged that there are still “disagreements”, which the teams of the two protagonists are called upon to reconcile in a minimum of time.
Treasury Secretary Janet Yellen said yesterday that it is “highly likely” that the United States will face default after June 1.
Kevin McCarthy, after the tete-a-tete in the Oval Office, said for his part that “the tone tonight was better than any time before”, but also spoke of deep disagreements and a misunderstanding of its urgency l ‘other side.
The meeting was aimed at reviving negotiations that had stalled over the weekend in the absence of Biden, who was in Asia.
The octogenarian Democrat, returned yesterday Sunday from the G7 summit in Japan, had planned to also go to Oceania on his departure; the political and financial deadlock in Washington forced him to cut short the trip.
What it takes to not stop payments
To avoid the risk of a catastrophic default, Congress — the Democratic-controlled Senate and the Republican-controlled House — must vote to approve an increase in the maximum amount the state can borrow. In previous years, this was generally standard procedure.
This time, Republicans are demanding drastic government spending cuts over a decade to give the green light. Joe Biden, who is campaigning for re-election in 2024 on a promise of more social justice, rejects her. He accuses the opposition of holding the American economy hostage.
‘We need to change course, our debt is too big,’ McCarthy insisted ahead of meeting with Biden, as his faction recently argued the US could not continue to live on loans ‘from China’ .
The US president says he is ready to discuss deficit reduction, but for his part, he reminds that tax loopholes must be examined in depth and that big companies and the wealthiest Americans “pay what they deserve” in taxes. Something the other side doesn’t even want to hear.
The famous “borrowing limit” or “debt ceiling” of more than $31 trillion – a world record – was exceeded months ago; the government has so far managed the situation with accounting arrangements.
If a default were to be declared, the United States would not be able to pay interest to holders of US Treasury securities, which are considered the safest investments in global financial markets. They will not be able to pay the salaries of civil servants, the pensions of veterans of the armed forces, etc.
The consequences for the US and global economy would be disastrous, economists warn.
However, recently former President Donald Trump, also campaigning for the 2024 election, urged his party to default the country unless it secured massive cuts in public spending.
Who will step back first?
Who will step back first? The American president, who knows full well that a possible recession, whatever his political genesis, would compromise if not destroy his chances of re-election? Or Kevin McCarthy, whose position depends on a dragon of hardline parliamentarians, who, like former President Trump, demand that he not be seen as “folding”?
“We have to come up with an outcome that we can sell to both parties,” Biden admitted yesterday, who likes to say that during his long career in Congress he has become an outstanding negotiator.
The left wing of the Democrats would prefer to take the initiative to unilaterally raise the borrowing limit of the federal government, citing the 14th amendment to the American Constitution, which prohibits any “questioning” of the solvency of the first world economy.
In this case, the US government could issue new bonds as if the debt limit did not exist. But lurking in this scenario is the danger of a long legal battle pitting Joe Biden against the Supreme Court – where the tide swings decisively to the right.