President Joe Biden has said that the United States will avoid a catastrophic credit default even though lawmakers went on a 10-day break without reaching a deal on raising the nation’s borrowing limit to keep paying its bills. There are seven days until June 1, which is the earliest possible point when the government estimates it could run out of money to service its debts. Missed loan repayments could spark a recession, which would affect world markets. Members of the House of Representatives began their Memorial Day recess after their final vote on Thursday morning and are not due to return until June 4.
Biden said at the White House that his negotiations with Republican Speaker Kevin McCarthy had been “productive” and that there will be no default. However, Democratic minority leader Hakeem Jeffries accused the Republicans from the House of abandoning their jobs in Washington to “risk a dangerous default in a crisis that they’ve created.”
House Republicans are demanding cuts of up to $130 billion, with spending next year capped to 2022 levels, in return for their votes to raise the borrowing cap. They also want tightened work requirements for benefits claimants and a clawback of unspent pandemic aid dollars. Democrats reject the proposed cuts and want the Republicans to sign off on a no-strings-attached hike.
Economists have warned of economic catastrophe should the government default, and top military brass added their own warning that the crisis would have a “significant negative impact” on troops. McCarthy has said lawmakers will get 24 hours’ notice if they are required to return for a vote during the recess, with negotiators for the Republicans and the White House reportedly closing the gap on their differences.
Raising the cap enables the government to make repayments on loans that have already been approved and carried out, and has no implications for future spending. Only one other democracy — Denmark — has a formal debt ceiling, but it is managed without the political high drama that periodically grips Washington.