America Barreling Toward Default Next Week

U.S. Treasury on track to run out of funds as soon as next Thursday.

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If only President Biden could sidestep a debt default as deftly as he dodges killer U-Haul trucks.

Despite a surfeit of chirpy talk of optimistic “tones” in the discussions over the U.S. budget and debt ceiling, negotiations between Biden and GOP congressional leaders and their respective staffs remain at a stalemate.

If anything, it is starting to feel downright uncomfortable that with just a week to go before the U.S. runs out of funds, both sides continue to call the summits “productive” after no substantive progress.

An Oval Office meeting earlier this week resulted in House Republican Speaker Kevin McCarthy sounding extra upbeat about his conversations with the president. “I think the tone tonight was better than any other time we’ve had discussions,” he said Monday. “I believe we can get it done.”

He said he and Biden were well aware the deadline is looming, “so I think we’re going to talk every day.” 

House Republicans narrowly passed a bill this spring to raise the debt ceiling, but only in exchange for trillions of dollars in spending cuts that are unlikely to pass the Senate or make it past a presidential veto. 

That means even if Biden and McCarthy come to a swift agreement, they will still need it to pass both chambers of a deeply divided Congress.

During his remarks, McCarthy insisted he will stand by a hard limit on government spending, telling reporters, “We are not putting anything on the [House] floor that doesn’t spend less than we spent this year.” 

That’s going to be a tall order in an environment of runaway inflation.

“We still have some disagreements, but I think we may be able to get where we have to go,” Biden echoed, but noted that any deal would need to get through “both sides” of Congress, which he described as politically split down the middle in both chambers.

He reiterated that both he and McCarthy agree on a few points: defaulting on the nation’s debt is not an option, reducing the nation’s deficit would be beneficial and an understanding that they must come to a bipartisan agreement. 

So far, Biden’s suggestions to close tax loopholes for the wealthy as a way of increasing government revenue has been branded a non-starter by congressional Republicans, while Democrats have objected to GOP spending cuts that could risk benefits to veterans, healthcare, education and other key programs.

The U.S. has already reached its debt limit of $31.4 trillion. With the clock running down, is not entirely clear that it is not too late right now to hammer out a deal. Tuesday afternoon, as White House staff grimly filed out of the Capitol building following more talks, Shalanda Young, director of the U.S. Office of Management and Budget, was asked if the discussions would continue into the night. “That’s a good one,” she responded drily.

U.S. Treasury Secretary Janet Yellen sounded her most dire warning yet in a letter Monday, stating it is “highly likely” the country will no longer be able to pay its bills if Congress doesn’t vote to raise or suspend the debt limit as early as June 1 – that’s Thursday of next week. 

Yellen reminded lawmakers that past debt ceiling fights have damaged the nation’s standing and that waiting until the last minute “can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.” 

Treasury’s borrowing costs have already spiked for securities maturing in early June. “If Congress fails to increase the debt limit,” she said, “it would cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests.”

As of this writing, the path to avoiding a default seems narrow, if not nonexistent. For Biden and McCarthy, any solution must win over the majority of Republicans — some of whom have never before voted to raise a debt ceiling — while also gaining enough support from Democrats to pass.

Asked what it would take to overcome the impasse this week, McCarthy responded simply, “June 1.”