Day after day, the US gets closer to defaulting on its debts, despite clear warnings of the repercussions of this event and the dangers this carries to American and global economies.
The debt ceiling of $31.3 trillion has been reached, and the US Treasury must tap into capital reserves, as it is now no longer allowed to take on new debt to pay its bills.
Treasury Secretary Janet Yellen warned that “time is running out” and said the US could be in default on June 1.
But the deadlock created by Republicans looking to impose concessions from the White House appears to be continuing with no end in sight.
In exchange for raising the debt ceiling beyond the $31.3 trillion limit, Republican House Speaker Kevin McCarthy is demanding that President Joe Biden approves future government spending cuts.
Read: Debt ceiling, recession uncertainty cast shadow on oil market
Biden and Democrats need congressional Republicans to raise the debt ceiling.
Raising taxes on the wealthy and corporations to help pay for programs geared to Americans who need them is a key part of Biden’s 2024 budget.
Biden decided to cut short his trip to the G7 meeting in Asia in an attempt to fix the impasse.
Biden and Democratic Senate Majority Leader Chuck Schumer and McCarthy met in the Oval Office on Tuesday. Schumer called the meeting “good and productive” at a news conference outside the White House.
McCarthy said a deal was possible but stressed that Democrats and Republicans remained far apart. He pointed out that negotiations aimed at raising the US public debt ceiling and avoiding a catastrophic default still require a lot of work, especially as the margin for reaching an agreement has narrowed. But he added: “It is possible to reach an agreement by the end of the week.”
But Democrats were not as confident that a deal could be reached so quickly, though the White House described the meetings as “productive and direct.”
Biden said after the meeting: “There is still work to be done. “We’re moving forward to make sure America doesn’t default.” He expressed disappointment that Republicans would not look for ways to increase revenue.
Economists fear the country could slide into recession with the US government likely to default as soon as June 1 unless Congress votes to raise the debt ceiling.
Some argue that every day that passes and approaches the Treasury Department’s June 1 date without resolving the impasse could increase market volatility, weaken demand for risky assets in the United States, and even accelerate the recession.
A Bank of America survey found that fund managers’ sentiment has deteriorated to the highest degree of pessimism this year, with 65 percent of respondents expecting poor economic performance.
A similar standoff in 2011 over the debt ceiling led to a historic downgrade of the US credit rating, sparking a sell-off in shares and raising government borrowing costs.
The current predicament has worried investors, sending the cost of insuring US government debt to record highs.
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