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Friday 20 January 2023

U.S. Treasury buys time for Biden and GOP on debt limit deal

Continued from Front over what are the circum- The debt ceiling was origi- default could be devastat- the “X-date,” the deadline
stances or conditions under nally a fix made during ing, with crashing markets when the Treasury’s “ex-
Biden insists on a “clean” which the debts are going World War I that enabled and panic-driven layoffs if traordinary measures” are
increase to the debt limit so to be raised.” bonds to be issued without confidence evaporated in depleted.
that existing financial com- But any deal would also requiring repeated con- a cornerstone of the global Unlike the 2011 showdown,
mitments can be sustained need to pass the Demo- gressional approvals. But economy, the U.S. Treasury the Federal Reserve is ac-
and is refusing to even start cratic-run Senate. Many in an era of polarization note. tively raising interest rates to
talks with Republicans. Mc- Democratic lawmakers are and rising debt loads, the Analysts at Bank of Amer- lower inflation and is rolling
Carthy is calling for nego- skeptical about the ability limit has been transformed ica cautioned in a report off its own holdings of U.S.
tiations that he believes to work with Republicans into a political bludgeon. It last week that “there is a debt, meaning that reces-
will lead to spending cuts. aligned with the “Make does not reflect the actual high degree of uncertainty sion fears are already el-
It’s unclear how much he America Great Again” capacity of the federal about the speed and mag- evated among consumers,
wants to trim and whether movement started by government to borrow, sim- nitude of the damage the businesses and investors.
fellow Republicans would Trump. The MAGA move- ply how much it is legally U.S. economy would incur.” Biden administration of-
support any deal after ment has claimed that the able to do so without con- The underlying challenge is ficials have said they will
a testy start to the new 2020 election lost by Trump gressional signoff. that the government would not prioritize payments to
Congress that required 15 was rigged, a falsehood In order to keep the gov- have to balance its books bondholders if the country
rounds of voting to elect that contributed to the ernment open, the Treasury on a daily basis if it lacks passes the “X-date” with-
McCarthy as speaker. Jan. 6, 2021, insurrection at Department on Thursday the ability to issue debt. If out an agreement. Over
Asked twice on Wednes- the U.S. Capitol. was making a series of ac- the government cannot is- the years, officials have
day if there was evidence “This is not complicated: counting maneuvers that sue debt, it would have to studied this emergency op-
that House Republicans If the MAGA GOP stops would put a hold on contri- impose cuts equal in size tion, which Treasury officials
can ensure the govern- paying our nation’s bills, butions and investment re- on an annual basis to 5% across administration have
ment will avert a default, Americans will be the ones demptions for government of the total U.S. economy. said is unworkable be-
White House press secre- to pay the price,” said Sen- workers’ retirement and Analysts say their baseline cause of the government’s
tary Karine Jean-Pierre said ate Majority Leader Chuck health care funds, giving case is that the U.S. avoids payments system.
it’s their “constitutional re- Schumer, D-N.Y. “Political the government enough fi- default. “To some extent, the ‘ex-
sponsibility.” She did not say brinkmanship with the debt nancial space to handle its Still, if past debt ceiling traordinary measures’ are
whether the White House limit would be a massive hit day-to-day expenses until showdowns such as the the backup plan, and
saw signs at this stage that to local economies, Ameri- roughly June. one that occurred in 2011 once those are exhausted
a default was out of the can families, and would be What happens if these are any guide, Washing- the next step is a major
question. nothing less than an eco- measures are exhausted ton may be in a nervous question mark,” econo-
“We’re just not going to ne- nomic crisis at the hands of without a debt limit deal state of suspended anima- mists at Wells Fargo wrote
gotiate that,” Jean-Pierre the Republicans.” is unknown. A prolonged tion with little progress until in a Thursday analysis.q
said. “They should feel the
responsibility.”
McCarthy said Biden needs
to recognize the political
realities that come with a
divided government. The
speaker equates the debt
ceiling to a credit card limit
and calls for a level of fiscal
restraint that did not oc-
cur under President Donald
Trump, a Republican who
in 2019 signed a bipartisan
suspension of the debt ceil-
ing. “Why create a crisis
over this?” McCarthy said
this week. “I mean, we’ve
got a Republican House, a
Democratic Senate. We’ve
got the president there. I
think it’s arrogance to say,
‘Oh, we’re not going to ne-
gotiate about pretty much
anything’ and especially
when it comes to funding.”
Senate Republican Lead-
er Mitch McConnell said
Thursday in Louisville, Ken-
tucky, that he was uncon-
cerned about the situation
because debt ceiling in-
creases are “always a rath-
er contentious effort.”
“America must never de-
fault on its debt,” McCon-
nell said. “We’ll end up in Treasury Secretary Janet Yellen speaks with reporters during a visit to the Virginia Innovation Partnership Corporation incubator at the
some kind of negotiation Center for Innovative Technology campus in Herndon, Va., Oct. 21, 2022.
with the administration Associated Press