US House Speaker Kevin McCarthy and President Joe Biden said they had “productive” discussions late Monday at the White House on their debt ceiling but reached no agreement, as the government seeks to avoid a potentially catastrophic economic event.
If the debt ceiling is not raised, the US government will default on its bills: a historic first with potentially disastrous consequences. Federal employees would be furloughed, global stock markets would likely crash and the US economy would probably slide into recession. The Treasury Secretary, Janet Yellen, has said this will happen on or around June 1 if a deal is not reached to raise the $31.4tn debt limit.
McCarthy led the Republicans, who were demanding drastic spending cuts in exchange for raising the ceiling. Democrats fear Republicans are prepared to allow talks to implode, seeing a default as the price to pay for beating Biden next year.
Biden has said he will consider spending cuts, but has called the Republican proposals “excessive” and “unacceptable”, saying he will not roll back subsidies for big energy companies and “wealthy tax cheats” or healthcare. And will put food aid at risk.
At the start of a White House meeting on Monday evening, the president told reporters: “We both talked about the need for bipartisan agreement.”
He also said that he was “optimistic that we are going to make some progress” but said that both parties needed a bipartisan agreement to “sell it” to their constituencies. There may still be some disagreement, Biden said.
McCarthy, sitting next to the president in the Oval Office, said: “I think at the end of the day we can find common ground” but differences remained.
After the meeting, McCarthy described the conversation as positive, saying that the pair had “productive discussions” but that “we don’t have an agreement yet.
After the Oval Office meeting, McCarthy said, ‘It’s wrong to spend time, just spending more money in America and the government. He said his staff would continue talks and added, “I believe we can still get there.”
In a brief statement after the meeting, Biden described the session as productive, but added only that he, McCarthy and his key interlocutors would “continue to discuss the way forward”. Biden said everyone agreed that “default is really not on the table”.
Earlier, in a message seen by the Guardian, a senior Democratic Senate staffer predicted disaster.
“I think we will” default, the employee said. “I think most House Republicans want a default, so even if McCarthy could make a deal, he would not have the votes to pass it.”
Staff-level talks stalled on Friday after Republicans rejected a White House proposal to impose a spending freeze instead of cuts. Returning from the G7 summit in Japan on Sunday, Biden told reporters that the conversation with McCarthy on Air Force One “went well.” The next day, McCarthy said that staff-level talks would continue.
He later told reporters: “I firmly believe that with the talks we’re having now, most Republicans will see that this is a right place to get us on the right track. We can get a deal tonight. We’ll get a deal tomorrow.” The deal can be reached but you have to do something this week to be able to pass it and take it to the Senate.
It will take several days to get the legislation through Congress.
Yellen said again on Monday that the earliest projected default date was June 1 and that it was “highly likely” that the Treasury would no longer be able to meet all obligations if the debt ceiling was not raised.
credit limit was planted in 1917Congressional response to America’s entry into World War I. For much of the next 100 years, raising the roof was a formal process, if often subject to political grandstanding.
Under Donald Trump, Republicans raised the limit three times, contributing to the rising debt with increased spending and tax cuts for wealthy Americans.
Now, under McCarthy but drawing inspiration from the 2011 impasse in which Republicans led by then-Speaker John Boehner won major concessions from Barack Obama, the GOP is positioning itself as the party of budget hawks.
The chief Republican negotiator on Sunday, Garrett Graves of Louisiana, told reporters: “One red line is spending less money. And until and unless we’re there, everything else is really irrelevant.”
Trump, an apparent frontrunner for the Republican presidential nomination, has said the US should default if Biden does not accede to demands that affect the domestic law he signed.
As the far-right wing of the Republican House caucus remains loyal to Trump, so does its grip on McCarthy after lengthening the process by which he became speaker through 15 rounds of voting.
Republicans control the House 222-213. Democrats hold the Senate 51-49.
Democrats are considering an attempt by Republican moderates to peel away most of the seats in areas won by Biden in 2020 and pass their own spending package.
Biden has been urged to invoke the 14th Amendment to the Constitution, which states that “the validity of the public debt of the United States shall not be called in question”, as a way to bypass House Republicans and avoid default.
The president has said he feels he has the authority to do so, but he fears Republican appeals will block the process in the appeals courts, which could result in a default.
Investors awaited an update on Monday.
“We expect a solution before the deadline, but anticipate unexpected developments throughout the process,” Bruno Schneller, a managing director at Invico Asset Management, told Reuters.