The debt ceiling crisis continues to escalate as President Joe Biden and House of Representatives Speaker Kevin McCarthy remain at odds over raising the $31.4 trillion U.S. debt limit.
With just three weeks left before a potential unprecedented default, both parties are under pressure to reach an agreement.
Biden and McCarthy’s tactic
In an effort to break the deadlock, Biden, a Democrat, and McCarthy, a Republican, have agreed to hold daily discussions about areas of possible agreement.
A default could happen as soon as June 1, making it crucial for both parties to find common ground. The president and top congressional leaders are set to meet again on Friday.
During the Oval Office talks, Biden called the discussions “productive” and seemed to offer possible compromises. He mentioned taking a “hard look” at clawing back unspent coronavirus relief funds to reduce government spending.
However, he reiterated that Republicans must take the threat of default off the table and did not rule out invoking the 14th Amendment, an untested approach that would declare the debt limit unconstitutional.
McCarthy insists on spending cuts
In contrast, McCarthy expressed dissatisfaction with the lack of progress made during the meeting. He criticized Biden for not agreeing to talks sooner and said the president’s approach was not an effective way to govern.
Nonetheless, McCarthy mentioned that Biden appeared open to discussing reforms to the permitting process for new energy projects as part of the negotiations.
Economists warn that a prolonged default could plunge the American economy into a deep recession, with soaring unemployment and destabilizing the global financial system built on U.S. bonds.
Risks of a divided political landscape
While previous debt ceiling fights have typically concluded with a last-minute agreement to avoid default, the current situation is riskier due to the widening political divides.
This is the first meeting between Biden and McCarthy since February 1 and comes at a critical time as the U.S. Treasury predicts that the country could be forced to default on some debts in June.
Earlier on Tuesday, McCarthy appeared to dismiss the possibility of a short-term solution that would lift the debt ceiling through September to allow more time for an agreement. However, Biden has not ruled out such an arrangement.
The beginning of active talks may ease the concerns of investors who recently forced the federal government to pay its highest interest ever for a one-month debt issue.
Prices for short-term Treasury bills have fallen, as investors sold off debt that could come due around the time the U.S. debt limit could be hit.
Biden’s foreign travel plans and House and Senate recesses mean there are just seven days when all three parties are scheduled to be in town before June 1.
Treasury Secretary Janet Yellen has warned that failing to raise the debt limit would hurt the U.S. economy and weaken the dollar as the world’s reserve currency.
