US Debt Default Negotiators Get Extra Breathing Room

Washington, (UrduPoint / Pakistan Point News - 27th May, 2023 ) :Democrats and Republicans inched towards a deal on Friday to avoid a crippling US debt default -- and won a bit of extra breathing room as the Treasury Department pushed back the date the government's money will run out.

Treasury Secretary Janet Yellen said the dreaded X-date will now be June 5, not June 1, if Congress fails to lift the debt ceiling, authorizing increased government borrowing.

Yellen, however, warned that the deadline extension does not change the urgency to end the standoff in Congress.

"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," she said in a letter to top Republican Kevin McCarthy.

There were glimmers of optimism. According to unconfirmed US media reports, a deal taking shape would include an agreement to extend the government's borrowing authority for two years, meaning no repeat of the current drama before the 2024 presidential election.

Democrats, however, would have to offer concessions on Republican demands for sweeping spending limits on social safety and other domestic programs.

House Speaker McCarthy told reporters that negotiators had "made progress" but added: "Nothing is agreed to until it's all agreed to." A first US debt default in history would likely trigger stock market selloffs, huge job losses and recession, with major spillover into global economies.

IMF Managing Director Kristalina Georgieva cited new data that she said showed the "US economy has proven resilient," but urged a "speedy resolution" to the debt issue.

"We think of the US Treasury market as an anchor for the global financial system, and this anchor needs to hold," she said.

- Hostage-taking accusation - With the country getting a three-day Memorial Day holiday weekend, members of Congress are leaving Washington on their own 10-day recess. Even President Joe Biden -- to the consternation of some in his own party -- is heading to his Camp David retreat and his private home in Delaware.

Yet Wally Adeyemo, the deputy Treasury secretary, told CNN that both Biden and McCarthy were focused on avoiding catastrophe.

"The president decided, the speaker has said it, and we have to get something done before June," Adeyemo said. "The president is committed to making sure that we have good faith negotiations with the Republicans to reach a deal because the alternative is catastrophic for all Americans." On Thursday, Biden had also tried to reassure the country, saying: "There will be no default." The debt ceiling raise is an annual accounting maneuver that usually passes with relatively little notice. It simply allows the government to keep borrowing money to pay for bills already incurred through the budget.

This year, the increasingly hard-right Republican Party has decided to turn the debt ceiling into leverage to force Biden to roll back favorite Democratic spending priorities.

Republicans call this taking responsibility for the $31 trillion national debt. The White House accuses the opposition party, which controls the House of Representatives, of taking the economy hostage.

- Military warning - Democratic minority leader Hakeem Jeffries slammed the Republicans from the House floor on Thursday, accusing them of risking "a dangerous default in a crisis that they've created." Economists have spent months raising the prospect of economic catastrophe should the government default, and top military brass added their own dire prognosis Thursday, warning that the crisis would have a "significant negative impact" on troops.

"Readiness clearly would be impacted," Mark Milley, chairman of the Joint Chiefs of Staff, told reporters.

McCarthy has pointed to a recent CNN poll showing 60 percent support for a debt ceiling hike if accompanied by cuts, although 51 percent of respondents in a new Monmouth University survey said they wanted the two issues to be separated.

Although lawmakers are on recess, McCarthy has said they will get 24 hours' notice if they are required to return for a vote.