WASHINGTON, Jan 19 (Reuters) – The U.S. government hit its $31.4 trillion borrowing limit on Thursday, amid a stalemate between the Republican-controlled House of Representatives and President Joe Biden’s Democrats. which could lead to a fiscal crisis in a few months.
Treasury Secretary Janet Yellen informed congressional leaders, including House Speaker Kevin McCarthy, that her department had begun to use extraordinary cash management measures that could prevent defaults by June 5.
Republicans, with a newly won majority in the House, intend to use the time until the Treasury’s emergency maneuvers run out to demand spending cuts from Biden and the Democratic-led Senate.
Yellen warned that the June date is subject to “considerable uncertainty” due to the challenge of predicting government payments and revenue months into the future.
“I respectfully ask Congress to act promptly to protect the full faith and credit of the United States,” Yellen told congressional leaders in a letter on Thursday.
But there was no sign that Republicans or Biden’s Democrats were willing to budge.
Republicans are pursuing a “debt prioritization” plan that would seek to avoid default, urging the Treasury to prioritize debt repayments and possibly other priorities such as Social Security and Medicare if the cap is breached during negotiations. Republicans hope to complete the legislation by the end of March.
Brian Deese, director of the White House National Economic Council, on Thursday emphasized the risks of uncertainty over whether the United States will honor its debts to its own economy, as well as its global position.
“It’s not that complicated. It’s not about new initiatives or new opportunities. It’s about fulfilling the obligations that this country has already taken on,” Deese said in an interview with CNN.
The prospect of temerity has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle of 2011 that led to a downgrade of the US credit rating and years of forced cuts in domestic and military spending.
“We’re not going to default on the debt. We have the ability to manage the service and pay our interest. But by the same token, we shouldn’t blindly raise the debt ceiling,” Rep. Chip Roy, a top Conservative, told Reuters.
Roy played down concerns about unstable markets and the risk of a recession.
“That’s what they say all the time. It’s like clockwork,” Roy said in an interview. “We are already heading for a recession. The question is how it will be – unless the combination of monetary policy and fiscal policy saves us from our stupidity of spending so much money.”
Congress adopted a sweeping debt ceiling, the statutory maximum amount of debt the government can issue, in 1939, intended to limit its growth. The measure did not have that effect, as, in practice, Congress treated the annual budget process—deciding how much money to spend—separately from the debt ceiling—in essence, agreeing to cover the costs of previously approved spending.
Negotiations on prioritizing debt and spending are not likely to get into full swing until lawmakers return to Washington next week.
The Republican plan calls for balancing the federal budget over 10 years, capping discretionary spending to 2022 levels and using House oversight to identify federal programs that can be eliminated or reduced in spending bills that must come from the House Appropriations Committee. still this year.
Meanwhile, House Republicans have pledged to reject Senate Majority Leader Chuck Schumer’s government funding bills, similar to the bipartisan $1.66 trillion package Congress passed late last year.
White House officials also note that Republicans in Congress supported several increases in the debt ceiling when Republican Donald Trump was president.
“We’re optimistic that Democrats will sit around the table and negotiate in good faith,” said Republican Rep. Ben Cline, who leads a conservative task force on budgeting and spending. “There is a lot of room for negotiation when it comes to measures that can be taken to address the fiscal crisis we find ourselves in.”
Reporting by David Morgan and David Lawder; Additional reporting by Jeff Mason and Doina Chiacu; Editing by Scott Malone, Bradley Perrett and Chizu Nomiyama
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