President Biden and congressional leaders met urgently to address the deadlock over raising the enormous $31.4 trillion US debt limit. Failing to reach an agreement within three weeks could lead to an unprecedented default, causing severe consequences for the country. With both sides reluctant to compromise, Biden and top lawmakers gathered in the Oval Office to tackle the critical issue.
During the meeting, Biden, a Democrat, refrained from commenting, humorously suggesting they would solve all the world's problems without taking questions. The leaders were seated along party lines, with Republicans on one couch and Democrats on the other, while Biden sat between them. Biden was accompanied by five senior aides, including Chief of Staff Jeff Zients and budget director Shalanda Young.
Economists warn of dire consequences if a prolonged default were to occur, including a deep recession, high unemployment, and destabilization of the global financial system. Investors are preparing for potential impacts. Biden urges lawmakers to raise the debt limit without conditions, while Republicans, led by McCarthy, insist on spending cuts to address the budget deficit. The current situation is riskier than previous debt ceiling battles due to heightened political divisions.
The meeting held significant importance as the June 1 deadline approaches, when a potential default on certain debts is projected. McCarthy aims to link the debt ceiling vote to broad spending cuts, a stance that the White House considers extreme. Notably, this was Biden's first meeting with McCarthy since February 1.
The US Chamber of Commerce, the largest business association in the country, called for a swift bipartisan agreement on the debt limit, emphasizing the need for energy project permitting reform and discretionary spending caps. Unlike many countries, the US periodically lifts the borrowing limit to cover previously authorized spending by Congress.
While the start of active talks may provide some reassurance to investors, concerns remain. Treasury bills experienced price declines as investors sold off debt that could mature around the time the debt limit is reached. With Biden's foreign travel plans and scheduled recesses for the House and Senate, there are limited days for all parties to convene before June 1.
Treasury Secretary Janet Yellen has warned about the devastating impact on the US economy and the dollar's weakening as the world's reserve currency if the debt limit is not raised. As the Treasury's cash reserves dwindle and extraordinary measures are depleted, the urgency to find a solution grows. While the White House has explored the option of Biden invoking the 14th amendment of the US Constitution to lift the debt limit, the president has not yet pursued this path.
The ongoing negotiations hold significant implications for the US economy, global financial stability, and the functioning of the government. The outcome will determine whether the country averts a default and provides insight into the ability of political leaders to find common ground on critical fiscal matters.
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