26th May 2023 – (Washington) As lawmakers in the United States go on a 10-day break without a deal on raising the nation’s borrowing limit to keep paying the bills, President Joe Biden has declared that the country will avoid a disastrous credit default. The government estimates that it could run out of money to service its debts by 1st June, which could result in missed loan repayments and trigger a recession, roiling world markets. However, Biden has said that there will be no default, adding that his negotiations with Republican Speaker Kevin McCarthy, who leads the narrow majority in the House of Representatives, have been productive.
The House Republicans are demanding cuts of up to $130 billion, with spending next year capped to 2022 levels in return for their votes to raise the borrowing cap. They also want tightened work requirements for benefits claimants and a clawback of unspent pandemic aid dollars. Democrats reject the proposed cuts and want the Republicans to sign off on a no-strings-attached hike, as they have dozens of times in the past.
Economists have spent months raising the prospect of economic catastrophe should the government default. Top military brass added their own dire assessment on Thursday, warning that the crisis would have a “significant negative impact” on troops. “Readiness clearly would be impacted. So our large-scale exercises that we do at various training centres would probably either slow down or come to a halt in many, many cases,” said Mark Milley, the chairman of the Joint Chiefs of Staff.
Raising the national debt level has no implications for future spending; it simply enables the government to make repayments on loans that have already been approved and carried out. However, the political high drama that periodically grips Washington has made raising the debt ceiling a contentious issue. While only one other democracy, Denmark, has a formal debt ceiling, it is managed without the political turmoil that the US experiences.
White House chief of staff Jeff Zients suggested Republican protestations over out-of-control government spending were disingenuous, pointing to their plan to extend Donald Trump-era tax cuts, which Democrats say would add $3.5 trillion to the debt. “Apparently no concerns about blowing up the deficit as long as it’s for the top 0.1 per cent of households in America,” he tweeted.
Deputy Treasury Secretary Wally Adeyemo told investors at a conference in Washington that the default threat was a “manufactured crisis” that was already making borrowing more expensive and costing Americans money. Without efforts to speed up the normal process, any agreement would require at least 10 days to be formalised into legislative language, pass the House and Senate, and get to Biden’s desk.