Biden resumes tough loan talks, has 10 days to go

Joe Biden and Kevin McCarthy, his main Republican rival on the debt ceiling, will resume discussions on Monday after a week of blockades, in an effort to quickly find a deal and avoid a dangerous default in payments by the United States.

The US President, who has just returned from Japan where he attended the G7 summit, is scheduled to receive the Republican leader of the House of Representatives on Monday.

The two spoke to each other on Sunday while Joe Biden was on his plane to return to Washington. According to US media, Kevin McCarthy spoke of “productive” discussions, indicating that teams from the two camps have resumed discussions in the process.

That positive sign is the first since a meeting between Democratic and Republican negotiators at the White House on Friday, but without Joe Biden, already on his way to Hiroshima, turned sour.

US debt ceiling (AFP)

Because Republicans required, to give their green light, a reduction in federal spending. The Biden administration declined, and proposed slashing some spending while raising taxes for the wealthiest and companies.

Kevin McCarthy tweeted, “Washington can’t spend the money we have.”

Joe Biden warned them that he would “refuse a deal that protects billions of[dollars]in subsidies for big oil companies, jeopardizing the health care of 21 million Americans. Or food aid for one million Americans.” Protects the rich by taxing cheaters while putting them at risk.”

– Concrete Effects –

The US President assured, “America has never defaulted on its debts. And it never will.”

A sign in Washington on May 19, 2023 (AFP-Mandel NGAN)
A sign in Washington on May 19, 2023 (AFP-Mandel NGAN)

But it is likely to happen if no agreement is reached. This unprecedented situation, with potentially devastating consequences for the US economy and even the world, could happen as early as June 1.

The United States then may not have been able to reimburse holders of US Treasury bonds, the king of investments in global finance. The government could neither pay the fixed salaries of civil servants, nor pay pensions for veterans, among others.

Even a decision taken at the last moment will have consequences. In 2011, it was this single threat of bankruptcy that, for the first time ever, caused the United States to lose its precious Triple A, the best credit rating from the rating agencies.

The tangible effects are already being felt, Treasury Secretary Janet Yellen warned on Tuesday, stressing that investors are “more reluctant to hold sovereign debt maturing in June”.

– Trump’s shadow –

And the shadow of Donald Trump is hovering over these talks. The former Republican president urged Republicans on May 10, over whom he has immense influence, to “cause the default” if Democrats did not accept “drastically cutting” spending. And on Friday, he called on them “not to bow down”.

Kevin McCarthy during a press briefing in front of the White House on May 16, 2023 (AFP - Mandel NGAN)
Kevin McCarthy during a press briefing in front of the White House on May 16, 2023 (AFP – Mandel NGAN)

On Sunday, White House spokeswoman Karine Jean-Pierre pointed the finger at Republican officials under the thumb of people she says are close to Donald Trump, condemning “highly partisan demands” proposed by conservatives.

In contrast, Kevin McCarthy, for his part, was accused of “controlling” the “left wing of the Democratic Party”.

If the disagreements remain too deep, Joe Biden may still have one card left: the 14th Amendment to the US Constitution, which provides that “the validity (…) of the public debt of the United States shall not be called in question”. Should”, and therefore makes it possible to pretend that the debt limit does not exist.

Indicating that he was studying the possibility, Joe Biden however was skeptical, and Janet Yellen also spoke of “legal uncertainty” and “tight deadlines”.

Like almost all major economies, the United States lives on credit. But, this being an American peculiarity, it is the prerogative of Congress to vote on raising the maximum amount of public debt that the world’s largest economy is authorized to raise.

And what was initially just a formality has now become a real political battleground.

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