Republicans, Democrats in Fight as Debt Default Deadline Looms

Republicans and Democrats are nowhere near a deal after a high-profile debt ceiling meeting failed to yield a breakthrough on Tuesday, risking a debt default that economists warn could cripple the U.S. economy and spawn a financial crisis.

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Republicans are proposing spending cuts in exchange for raising the borrowing limit. U.S. President Joe Biden and Democrats, meanwhile, are urging Congress to pass a "clean" debt ceiling increase without conditions.

"Over these last few days and weeks, there's a lot of politics, posturing and gamesmanship and it's going to continue for a while," Biden said in remarks after the meeting.

THE BLAME GAME

The meeting took place roughly a week after U.S. Treasury Secretary Janet Yellen warned that "extraordinary measures" to keep the government paying its bills "will no longer be possible" as soon as June 1.

It marked the president's first substantial conversation with Republican leaders about the debt ceiling crisis since February, though the two sides failed to bridge their differences amid a looming deadline.

"Everybody in this meeting reiterated the positions they were at. I didn't see any new movement," Republican House Speaker Kevin McCarthy said, criticizing the president for waiting 97 days "without ever meeting."

In January, the country already hit its US$31.4-trillion debt limit, set in Dec. 2021, prompting the Treasury Department to use accounting maneuvers known as "extraordinary measures" to keep the government paying its bills, such as curbing certain government investments.

At that time, the U.S. treasury secretary estimated that it was "unlikely" that cash and extraordinary measures would be exhausted before early June. After reviewing recent federal tax receipts, she estimated last week that "X-date" could hit as soon as June 1.

Democrats and Republicans -- who have been locked in a bitter fight for months -- have made little progress toward reaching an agreement, and have been blaming each other for the stalemate.

"We're the only ones to pass a plan," McCarthy said at a news conference earlier, referring to a bill passed by House Republicans in late April, which raises the debt limit by US$1.5 trillion or until March 31, whichever comes first, while reducing funding for federal agencies and limiting growth in government spending. The bill would also repeal some tax incentives for renewable energy, one of Biden's signature policies.

"So I think it's up to you now whether the economy goes in any trouble, it's you. Because the Republicans raised the debt limit, you have not," said the Republican leader in the House.

Biden, in a meeting with cabinet members and other economic officials last week, said Republicans are "trying to hold the debt hostage to get us to agree to some draconian cuts, magnificently difficult and damaging cuts."

As the two sides are busy playing the blame game, Americans are divided on who is to blame if the federal government eventually defaults on its debts.

According to a recent ABC News/Washington Post poll, 39 percent say they would mainly blame Republicans in Congress, while 36 percent say they would mainly blame Biden. Sixteen percent say they would blame both equally.

A debt ceiling showdown, which has investors panicking, is nothing new in the Capitol. Similar standoffs played out in 2011 and 2013, when Republicans demanded spending cuts in debt ceiling negotiations under then President Barack Obama, when Biden was vice president.

But America's ballooning debt resulted from choices made by both Republicans and Democrats during the past decades, according to a recent report by The New York Times.

Since 2000, politicians from both parties have "made a habit" of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers and emergency measures to help the nation endure two debilitating recessions, the report said.

ECONOMIC CATASTROPHE

The U.S. debt ceiling crisis could bring catastrophic consequences for the U.S. economy and the world economies, according to economists and observers.

"We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit 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," Yellen said in a letter to McCarthy on May 1.

In an interview early this year, Yellen warned that the effects of U.S. debt default could be as broad as a global financial crisis.

The U.S. treasury secretary is probably right "considering how large is the U.S. government debt market and how important a role it plays as the risk-free asset in the world financial system," said Desmond Lachman, a senior fellow at the American Enterprise Institute and a former official at the International Monetary Fund (IMF).

"Defaulting on the U.S. debt would bring a major negative impact for the U.S. economy and the world economies," said Lachman, noting that this makes it likely that some compromise will be reached by Biden and McCarthy even if that agreement is reached "at the very last hour."

"It would seem likely that until such an agreement is reached, we could have increased market volatility as market participants factor in that a default could occur," Lachman said.

Billionaire investor Warren Buffett, chairman and CEO of Berkshire Hathaway, recently said that he could not imagine the U.S. government allowing "the debt ceiling to cause the world to go into turmoil."

Congressional leaders will meet again with Biden on Friday. The president is scheduled to make a speech on Wednesday, in which he will likely lash out at Republicans over the debt-ceiling drama.

"Washington is running out of time before we breach the debt limit," said Maya MacGuineas, president of the budget watch group the Committee for a Responsible Federal Budget, who noted that "even flirting with default is dangerous."

"We need to raise the debt limit as soon as possible, without drama and without serious risk of default. To threaten default or drag one's feet is the height of irresponsibility. Lawmakers should stop approaching this as though they are on two different teams, and work together as the leaders of one country," she said.