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Friday, June 9, 2023

Biden and McCarthy Call Debt Talks ‘Productive,’ but no Deal as June 1 Deadline Looms

Biden and McCarthy Call Debt Talks ‘Productive,’ but no Deal as June 1 Deadline Looms – The US House speaker, Kevin McCarthy, and President Joe Biden expressed having a “productive” conversation regarding the debt ceiling late on Monday at the White House. However, they have not yet reached an agreement, as the government strives to prevent a potentially disastrous economic event.

Failure to raise the debt limit would result in the US government defaulting on its obligations, marking an unprecedented occurrence with severe consequences. Federal employees would face furloughs, global stock markets would likely experience a crash, and the US economy would likely enter a recession. Treasury Secretary Janet Yellen has stated that if no agreement is reached to raise the $31.4 trillion debt ceiling, this scenario would likely unfold on or around 1 June.

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McCarthy is spearheading the Republican party’s insistence on implementing significant spending cuts as a condition for raising the debt ceiling. Democrats are concerned that Republicans are prepared to let negotiations collapse regardless of the consequences, viewing a default as an acceptable sacrifice in order to gain an advantage over Biden in the upcoming year. 

Biden has said he will consider spending cuts but has called Republican proposals “extreme” and “unacceptable”, saying he will not back subsidies for big energy companies and “wealthy tax cheats” or put healthcare and food assistance at risk. At the start of the White House meeting on Monday evening, the president told reporters: “We both talked about the need for bipartisan agreement.”

He also said he “was optimistic we’re going to make some progress” but said both sides need a bipartisan agreement to “sell it” to their constituencies. There may still be some disagreements, Biden said. Seated beside the president in the Oval Office, McCarthy said: “I think at the end of the day we can find common ground” but differences remained. 

Following the meeting McCarthy characterized the negotiations as positive, saying that the pair had a “productive discussion” but that “we don’t have an agreement yet.” “The time of spending, just spending more money in America and the government is wrong,” said McCarthy after the Oval Office meeting. He said their staffs would continue talks and added, “I believe we can still get there.”

In a brief post-meeting statement, Biden called the session productive but merely added that he, McCarthy and their lead negotiators “will continue to discuss the path forward.” Biden said all agreed that “default is not really on the table.” Earlier, in a message, a senior Democratic Senate staffer predicted disaster. “I think we will” default, the staffer said. “I think most House Republicans want a default so even if McCarthy could make a deal he won’t have the votes to pass it.”

On Friday, discussions at the staff level came to a halt when Republicans declined a proposal from the White House to implement spending freezes instead of cuts. Following his return from the G7 summit in Japan on Sunday, President Biden informed reporters that his conversation with McCarthy during their flight on Air Force One was positive. The next day, McCarthy announced that staff-level negotiations would resume.

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On Monday, Yellen reiterated that the earliest projected date for a default would be 1 June, and she emphasized that it was highly probable that the treasury would be unable to fulfill all its obligations if the debt ceiling was not raised. On Monday, investors awaited updates. “We expect a resolution to be reached before the deadline, but anticipate unforeseen developments throughout the process,” Bruno Schneller, a managing director at Invico Asset Management, told Reuters.

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