The US economy is on the verge of running out of time to prevent debt defaults

Stephen Collinson of CNN

Washington (CNN) — America is coming to the brink self-imposed economic catastrophe with the Republican-led House of Representatives refusing to pay the country’s debts unless President Joe Biden agrees to current and future spending cuts and new limits on social programs.

If a compromise on increasing the government’s borrowing capacity is not reached within days, the US could lose its reputation as a stable anchor of the global economy. Millions of people were able to see pensions and veterans’ benefits halted as the government exhausted its ability to pay its debts due to the debt limit set by Congress.

The US insolvency resonated with the financial market, possibly triggering a recession that would cause severe job losses and shatter the already fragile economic security of many families.

After a weekend of acrimony between House Republican and White House negotiators, Biden will meet with House Speaker Kevin McCarthy on Monday to critical talks about restoring the economy from the abyss. The president had just returned to the US from Japan, where he found himself in a dizzying situation because he was unable to reassure other world leaders that Washington would not plunge the world economy into chaos.

The pressure for this meeting is enormous as Treasury Secretary Janet Yellen has warned that the government will not be able to meet its obligations if Congress does not raise the debt ceiling by June 1. resolved, it could cause panic in the financial markets and undermine confidence in the creditworthiness of the US.

Biden has already backtracked on his stance that he will not negotiate the debt ceiling – which must be raised to cover spending already approved by and authored by Congress and past presidents. Its officials say it is irresponsible of the GOP to hold the country “hostage” in such a critical issue. Republicans, however, say the government is spending too much money and see the threat of financial disaster as their main leverage against Biden.

When Biden was in Japan, the only stop on a longer journey he had to cut short, negotiators on both sides seemed to be making progress before talks stalled with each side blaming the other. The president has hinted that pro-Donald Trump extremists in the House of Representatives are ready to sabotage the economy to undermine his re-election campaign.

“I think there are some MAGA Republicans in the House who know what damage it would do to the economy, and since I’m the president and the president is responsible for everything, Biden would take the blame and that’s the only way to make sure Biden doesn’t he was re-elected,” he said in Japan.

McCarthy said on Sunday morning that Biden was changing his position because of pressure within his own party. “So I think he has to move away from the socialist wing of the Democratic Party and represent America,” the speaker told reporters.

Biden and McCarthy will meet on Monday

However, the rhetoric softened somewhat after Biden and McCarthy spoke as the president flew home on Air Force One. “I believe it was a productive call,” McCarthy said, adding that his attorneys, Representatives Garret Graves and Patrick McHenry, are resuming talks with the White House.

Roller coaster negotiations, suspended talks and accusations of ill will are part of every Washington spending confrontation. The acrimony is often greatest when negotiations reach a critical point before a deal is finally concluded. Both McCarthy and Biden have a political interest in showing their party members that they are tough on the other side.

However, there is reason to believe that this is not like the feud between previous presidents and congresses – a factor that makes the current situation so serious.

First, there is no guarantee that the Biden-McCarthy deal can pass Congress. McCarthy has already passed a bill to raise the debt ceiling in exchange for a wish list of Republican demands. Even this measure—which had no chance in the Democrat-led Senate—passed by only one vote. Any deal acceptable to Biden would by definition be much less attractive to Republicans – casting doubt on McCarthy’s ability to pass it.

Given his slim majority in the House, the Californian is one of them the weakest speakers of modern times. To win the job in January, he offered many concessions to GOP hardliners, including restoring the rule that any single member could order a vote to remove him. This means that he may again become a hostage to the party’s right wing, which includes many members who see the compromise as a failure.

Biden may not be wrong in claiming that some Trump supporters are willing to risk economic disaster if it ruins his presidency and helps his predecessor win another term. Trump stoked those suspicions by hinting at CNN’s Town Hall earlier this month that the US debt default might not be that serious.

If anything, Republican demands are getting tougher. The budget proposal the GOP unveiled over the weekend included at least two items that were not in the original GOP bill – immigration rules and additional changes to labor requirements for food stamps, a source with direct knowledge of the matter said.

McCarthy won the support of Republican Senator Bill Cassidy of Louisiana, who told CNN’s Jake Tapper: “State of the Unionon Sunday that “the president made fun of spending the first two years of his presidency. Now he wants Republicans to accept that as the new baseline.

“I think the Republicans and the American people have reason to say, ‘Mr. Mr. President, just because for the first two years of your Presidency you artificially inflated spending, by the way, giving us all sorts of inflation, does that become the new baseline?

Republicans have every right to seek spending cuts – they won the House of Representatives, albeit barely on a platform partly rooted on the issue last year. But the Republican Party’s willingness to use the debt ceiling to curb spending, risking plunging the country into an economic nightmare, is an example of the radicalism of the majority in the House of Representatives.

McCarthy may have opted to seek concessions in the lower-risk budget talk process. The Republican Party has also faced accusations of hypocrisy after it was willing to raise the debt ceiling when Republicans were in the White House, especially under Trump’s spendthrift regime.

Yellen on Sunday rejected claims by Republicans that the administration could extend the deadline for raising the debt limit to June 15, saying the likelihood of government finances holding out that long was quite low.

“I assume that if the debt ceiling is not raised, there will be hard choices to be made about unpaid bills,” Yellen told NBC’s “Meet the Press.”

A dangerous blame game

The deadlock dynamic is based on each side’s assumption that the other will pay the highest political price if the economy collapses precipitously due to insolvency.

It is doubtful whether the GOP House’s refusal to compromise with Biden so far fully reflects the will of the American people. While they control the house with a narrow majority – McCarthy can only lose four votes to pass the bill – Democrats control the Senate (with an even smaller majority) and also occupy the White House.

It is a balance of power that should lead both sides to a compromise, but extremist elements in the GOP House may prevent it.

How this game plays out will be critical to the power dynamics in Washington, because if Biden steps down, the GOP will surely try to lock him back into the debt limit before the next election. The confrontation will also be central to Biden’s legacy as the Republican Party seeks to limit some of the president’s past achievements, including his efforts to fight climate change.

Like McCarthy, Biden is also feeling political pressure within his own party after some progressive Democrats raised concerns that he would offer the speaker too much in any deal. Democrats are especially angry at the GOP’s efforts to impose new work requirements for Medicaid and supplemental food benefits for needy families.

Democratic Representative Summer Lee of Pennsylvania accused Republicans of “cruelty”, telling Tapper in “State of the Union” that the Republican Party’s proposals would push people even further into poverty.

Some Democrats called on Biden to make the call 14th Amendment powers to the Constitution to unilaterally raise the debt ceiling – an obligation legally reserved to Congress. The president said in Japan that he believed he had the authority to do so, but expressed doubts that such a move was possible within a limited time frame and could be upheld in legal disputes that could stretch all the way to the Supreme Court.

But in addition to protecting his own legacy, Biden needs to be aware of his own party’s discomfort. Any final deal with McCarthy will require the support of Democrats in the Senate. And polls already show the party’s limited enthusiasm for his re-election bid, which will depend on a strong Democratic turnout in the November 2024 polls.

While the main victims of default would be millions of Americans, the tense politics right now means that the careers of both Biden and McCarthy may depend on how their confrontation plays out in the coming days.

Meanwhile, the United States is headed for an economic cataclysm of its own invention.

“We’re in a crazy situation,” Democratic Maryland Senator Chris Van Hollen told ABC’s This Week.

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