7 months ago • 2 mins
It's crunch time for US president Joe Biden and Republican leader Kevin McCarthy as they scramble to strike a deal and avoid a disastrous US default.
The US Treasury Department has warned that the federal government might run out of money to pay its bills by June 1st. With just eight days left, time is ticking away, and passing the necessary legislation through a divided Congress takes time.
Pimco, the US bond giant, has stressed the urgency, emphasizing that negotiators need to reach an agreement by the middle of this week. However, Biden and McCarthy are still at odds over the path forward. While they have not personally spoken since their meeting at the White House on Monday, their negotiating teams have been "productive," according to McCarthy.
On one side, Republicans are advocating for significant spending cuts, while Democrats propose keeping spending steady and offsetting the debt with new taxes. This prolonged stalemate has rattled investors, impacting US stocks and driving up borrowing costs.
Tuesday's two-hour meeting between the negotiating teams yielded little progress. The lead negotiator for McCarthy, Representative Garret Graves, identified the funding issue as the biggest obstacle. Republicans aim to slash spending for the 2024 fiscal year back to 2022 levels, while Democrats want to maintain the current rate. It's a significant gap to bridge.
Amid the tough talks, both sides must recognize that compromises are necessary. White House spokesperson Karine Jean-Pierre acknowledged the difficulty of the negotiations and emphasized that neither party can expect to get everything they want.
The disagreements extend to various aspects, including Republicans' push for new work requirements on benefits programs for low-income Americans and relaxed energy permitting rules. They also seek to reclaim unspent funds designated for COVID relief. Biden, on the other hand, has shown a willingness to meet halfway by proposing a spending freeze, rescinding unspent relief funds, and implementing a two-year spending cap in line with previous bipartisan agreements.
However, tensions persist. McCarthy appears reluctant to make concessions beyond preventing default, which he considers a fundamental responsibility of his role. The internal challenges are also significant, with staunch Republicans pushing for sharp spending cuts and progressive Democrats opposing any cuts or new work requirements.
This high-stakes negotiation over the debt ceiling mirrors a similar showdown in 2011 when the federal government came perilously close to defaulting. Both parties face mounting pressure to find common ground and reach a resolution. Biden's shift from refusing to negotiate on the debt limit to engaging in talks with McCarthy in recent weeks reflects the gravity of the situation.
As the clock ticks, all eyes are on Biden and McCarthy to find a path forward and avert an economic catastrophe. The outcome of these negotiations will have far-reaching implications for the nation's financial stability and the overall economic landscape.
As for what happens next, you think it's close to a coin toss: our poll of Finimzers showed 52% expect the US to successfully avoid default by raising the debt limit.
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