US economy on edge as time runs out to avoid debt default | CNN politics (2023)

US economy on edge as time runs out to avoid debt default | CNN politics (1)

President Joe Biden and House Speaker Kevin McCarthy.

Washington CNN

America is approaching the brinka self-inflicted financial disasterwith the Republican-led House of Representatives refusing to pay down the nation's debt unless President Joe Biden agrees to current and future spending cuts and new limits on welfare programs.

If a compromise on increasing the government's borrowing authority is not reached within days, the United States could lose its reputation as a stable anchor in the global economy. Millions of people could see their pensions and veterans benefits put on hold after the government exhausts its ability to service its debt due to the debt ceiling set by Congress.

A US default would reverberate through financial markets and possibly trigger a recession that would cause severe job losses and shatter the already fragile sense of financial security for many families.

After a weekend of bitterness between House Republican negotiators and the White House, Biden will meet with House Speaker Kevin McCarthy on Monday.critical talks about withdrawing the economyfrom the cliff. The president had just returned to the United States from Japan, where he was in the astonishing position of being unable to convince other world leaders that Washington would not throw the global economy into chaos.

The pressure at the 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. But before then, serious damage could be done, because the mere suggestion that the crisis cannot be resolved could cause panic in financial markets and undermine confidence in US creditworthiness.

Biden has already backed away from his position that he will not negotiate on the debt limit — which must be raised to pay for spending already authorized by Congress and authored by himself and former presidents. His officials say it is irresponsible for the GOP to hold the country hostage on such a critical issue. However, Republicans say the government is spending too much money and see the threat of economic disaster as their main lever against Biden.

While Biden was in Japan, the only stop on a lengthy trip he was forced to cut short, negotiators from both sides appeared to be making progress before talks stalled, with each side blaming the other. The president has suggested that pro-Donald Trump extremists in the House of Representatives are ready to sabotage the economy in an attempt to derail his re-election campaign.

"I think there are some MAGA Republicans in the House who know the 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 do it on. confident that Biden will not be re-elected," he said in Japan.

McCarthy said Sunday morning that Biden is changing his views because of pressure from his own party. "That's why I think he needs to get away from the socialist wing of the Democratic Party and represent America," the speaker told reporters.

Biden and McCarthy will meet on Monday

The rhetoric eased a bit after the conversation between Biden and McCarthy as the president flew home on Air Force One. "I think it was a productive phone call," McCarthy said, adding that his deputies, Reps. Garret Graves and Patrick McHenry, continue to speak with the White House.

Negotiations on a roller coaster, deadlocks and allegations of bad faith are part of any spending showdown in Washington. Resentment is often greatest when negotiations reach a critical point before any agreement is reached. Both McCarthy and Biden have a political interest in showing members of their respective parties that they are tough on the other side.

But there are reasons to believe that this is not like squabbling between past presidents and Congress—a factor that makes the current situation so dire.

First, there is no guarantee that a Biden-McCarthy deal can pass Congress. McCarthy has already passed legislation raising the debt ceiling in exchange for a wish list of Republican demands. Even that measure — which didn't stand a chance in the Democratic-led Senate — passed by just one vote. Any deal acceptable to Biden would by definition be far less attractive to Republicans — casting doubt on McCarthy's ability to pass it.

Given his small majority in Parliament, the Californian is one of themthe weakest speakers in modern times. To win the job in January, he offered several concessions to Republican hardliners, including reinstating the rule that any individual member can vote to oust him. This means he could once again be held hostage by the party's right wing, which includes many members who see compromise as defeat.

Biden may not be wrong that some pro-Trump supporters are willing to risk financial disaster if it destroys his presidency and helps his predecessor win a second nonconsecutive term. Trump raised those doubts by suggesting in a CNN town hall earlier this month that America's debt default might not be that serious.

If anything, Republican demands are getting tougher. The budget proposal presented by the GOP over the weekend contained at least two items that were not in the original GOP bill — provisions on immigration and additional changes to work requirements for food stamps, a source with direct knowledge of the matter said.

McCarthy received support from Republican Sen. Bill Cassidy of Louisiana, who told CNN's Jake Tapper on "state of the connection” Sunday that “The president has spent his first two years in office abruptly. Now he wants Republicans to embrace it as the new foundation.”

"I think the Republicans and the American people are reasonable to say, 'Mr. President, just because you artificially inflated spending in the first two years of your presidency, by the way, with all kinds of inflation on top of that, is that going to be the new base?'"

Republicans have every right to seek to cut spending — they won the House, albeit narrowly, last year on a platform anchored in part on the issue. But the willingness of House Republicans to use the debt ceiling to cut spending at the risk of plunging the country into an economic nightmare exemplifies the radicalism of the House majority.

McCarthy could have chosen to seek concessions in the budget negotiations with lower risk. The GOP has also been accused of hypocrisy after it was willing to raise the debt ceiling while Republicans were in the White House, especially under Trump's spending spree.

On Sunday, Yellen rejected Republican claims that the administration could extend the deadline to raise the borrowing limit to June 15, saying the likelihood that the government's finances could last that long was quite small.

"My guess is that if the debt ceiling is not raised, it will be difficult to make decisions about which bills will remain unpaid," Yellen said on NBC's "Meet the Press."

A dangerous blame game

The dynamic of the impasse rests on each side's assumption that the other will pay the biggest political price if the economy goes into freefall due to default.

It is questionable whether the Republican Party's refusal to compromise with Biden fully reflects the will of the American people. While they control the House by a slim majority — McCarthy can lose just four votes to pass the bill — Democrats control the Senate (by an even smaller majority) and also hold the White House.

This is a balance of power that should encourage both sides to compromise, but extremist elements in the House GOP may make that impossible.

How this showdown plays out will determine the power dynamics in Washington, because if Biden relents, the Republican Party will surely try to get him back on the debt limit before the next election. The clash will also be crucial to Biden's legacy as the GOP seeks to limit some of the president's past achievements, including his efforts to fight climate change.

Like McCarthy, Biden is also facing political pressure from within his own party after some progressive Democrats expressed concern that he would offer the speakership too much in any deal. Democrats are especially angry about the GOP's push to impose new work requirements for Medicaid and supplemental food for poor families.

Democratic Rep. Summer Lee of Pennsylvania accused Republicans of "cruelty" and told Tapper on "State of the Union" that the GOP proposals would push people further into poverty.

Some Democrats have urged Biden to be invitedpowers under the 14th amendmentThe Constitution unilaterally raises the debt ceiling - a duty reserved by law to Congress. In Japan, the president said he believed he had the authority to do so, but expressed doubts about whether such a move was possible in the limited time frame available and whether it could be supported in legal challenges that could go all the way to the Supreme Court.

But in addition to protecting his own legacy, Biden must be mindful of the turmoil in his own party. Any final deal with McCarthy will need the support of Senate Democrats. And polls already show limited enthusiasm in the party for his re-election, which will depend on a strong Democratic turnout at the polls in November 2024.

While the primary victims of bankruptcy would be millions of Americans, the fraught politics of the moment mean that the careers of both Biden and McCarthy could depend on how their clash plays out in the coming days.

Meanwhile, the United States is headed for an economic disaster of its own making.

"We're in a crazy situation," Democratic Sen. Chris Van Hollen of Maryland said on ABC's "This Week."


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