Daily Management Review

In Absence Of Debt Ceiling Hike, US Economy Could Default June 1 ; Biden And McCarthy Scheduled To Meet


In Absence Of Debt Ceiling Hike, US Economy Could Default June 1 ; Biden And McCarthy Scheduled To Meet
After the US Treasury Department issued a warning that the government might not have enough money to pay its bills by June, U.S. President Joe Biden on Monday invited the four top congressional leaders to the White House the following week.
Janet Yellen, the secretary of the Treasury, wrote to Congress to inform them that without their help, the agency would "potentially as early as June 1" be unable to fulfil all of the United States government's payment obligations.
The estimate increased the possibility that the United States is on the verge of a historic default that would rock the world economy, giving political calculations in Washington—where Democrats and Republicans were bracing for a protracted standoff—new urgency.
In order to invite him to a meeting on May 9 at the White House, Biden called Republican House Speaker Kevin McCarthy in Jerusalem, where he is on a diplomatic mission. Since February, the two presidents haven't had a meeting to talk about the problem.
Additionally, Hakeem Jeffries of the House of Representatives, Chuck Schumer of the Senate, and Mitch McConnell of the Republican Party all received invitations from Biden. McConnell said he and Biden had a "good conversation" today and added, "I'm sure we'll be speaking again." McConnell's March fall sidelined him for weeks.
Last week, the House passed a bill to raise the debt ceiling that includes significant cuts to spending on everything from healthcare for the poor to air traffic controllers. Biden and the Democratic-controlled Senate say they will not support this measure.
Biden has adamantly stated that he will not compromise on raising the debt ceiling but will talk about spending cutbacks after a new cap is passed. Congress frequently combines raising the debt ceiling with other budget and spending legislation.
On May 9, according to a White House representative, Biden will "stress that Congress must take action to avoid default without conditions," contrary to his earlier statement that he wouldn't meet McCarthy at all to address the debt ceiling.
The latest prospective "X-date," which accounts for tax payments made in April, is essentially consistent with an earlier prediction made in January that the government might run out of money around June 5. However, Yellen provided some leeway by pointing out that federal receipts and expenditures are "inherently variable."
The exact day that Treasury uses all available extraordinary measures "could be a number of weeks later than these estimates," she said.
"It is impossible to predict with certainty the exact date when Treasury will be unable to pay the government's bills," she wrote.
Yellen previously assured Congress that Treasury will use extraordinary cash management techniques to maintain debt payments, federal benefit payments, and other expenditures after reaching the $31.4 trillion borrowing maximum on January 19. Suspending the sales of securities used by state and local governments to temporarily store funds is one of the actions Treasury is taking.
A comparable debt ceiling battle in 2011 brought the nation dangerously close to default and resulted in the downgrading of the nation's excellent credit rating. Negotiations may be considerably more challenging this time, according to veterans of the 2011 conflict.
The Republican-led House passed a plan on April 26 that would reduce tax breaks for solar energy and impose $4.5 trillion in spending reductions, or nearly 22%, in exchange for a $1.5 trillion increase in the nation's borrowing capacity.
The Democratic-controlled Senate has no chance of adopting the measure, and the White House has stated that Biden would veto it if it did.
The short deadline, according to budget analyst Shai Akabas of the Bipartisan Policy Centre, highlighted how urgent it is to resolve the heated stalemate and shattered hopes that Congress could hold negotiations into the late summer.
A potential default within weeks "is not a position befitting of a country considered the bedrock of the financial system, and only adds uncertainty to an already shaky economy," he added.
Due to some financial developments in June that could provide breathing room, Yellen has been evasive about the precise default date.
According to economists, Treasury could get a sizable sum of money from quarterly estimated tax payments due on June 15 if it can survive until early June benefit payments. Treasury would then be able to borrow $143 billion by stopping the reinvestment of maturing securities held by government retirement funds, allowing it to float until June 30.
That borrowing would enable it to pay bills well into July along with tax revenue.
But given that Social Security and Medicare make up the majority of the budget and are expected to see sharp increases as the population ages, the U.S.'s debt ceiling disputes are likely to continue for years to come.
As the discussion intensifies, Biden, who is running for re-election in 2024, is exploiting the House Republican plan to paint his rivals as a threat to regional economies.