U.S. Needs Bipartisan Effort to Lift $31.4 Trillion Debt Ceiling

The U.S. government has hit the $31.4 trillion borrowing limit on Thursday, as partisan standoff resumes between the Republican controlled House of Representatives and Biden’s Democrats to lift the ceiling. The United States could face a fiscal crisis in the coming months if the disagreement between two parties remain. U.S. Treasury Secretary Yellen warned congressional leaders, including U.S. House Speaker McCarthy, that the department had begun using extraordinary cash management measures that could avoid default until June 5.

Republicans, who won a House majority in November’s midterms, intend to use the time until the Treasury exhausts its maneuvers to force Biden and the Democratic-led Senate into cutting spending.

Meanwhile, corporate executives fear that a long standoff could damage markets and unsettle an already stressed global economy.

Yellen has also warned that the June date was subject to “considerable uncertainty” due to the challenge of forecasting payments and government revenues months into the future.

“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Yellen told congressional leaders in a letter Thursday.

Still, there hasn’t been any signs yet either Republicans or Democrats are willing to compromise.

Republicans are trying to use their narrow House majority and the debt ceiling to force cuts to government programs, and argue that the Treasury could avoid default during a standoff by prioritizing debt payments. This idea has been explored in past standoffs, but financial experts have questioned its feasibility.

“There will be no negotiations over the debt ceiling,” White House deputy press secretary Dalton said. “Congress must address this without conditions as they did three times under Trump.”

Both Washington and the Wall Street have been concerned about the process being dragged on, especially fearing that a fight over the debt ceiling could be as disruptive as the battle of 2011, which prompted a downgrade of the U.S. credit rating and years of forced domestic and military spending cuts.

“We’re not going to default on the debt. We have the ability to manage servicing and paying our interest. But we similarly should not blindly increase the debt ceiling,” Republican Representative Roy said.

Roy dismissed concerns about unsettling markets and risking a recession.

But corporate executives expressed concern over the standoff.

“I’m concerned and I’m going to take any opportunity that I can, and we can as a firm, to engage with people in Washington to try to make sure they understand that we don’t think that this is something that should be played with,” Goldman Sachs CEO Solomon said.

Senate Republican leader McConnell predicted that the debt ceiling would be lifted sometime in the first half of 2023 under conditions negotiated by Congress and the White House.

“It’s always a rather contentious effort,” McConnell told reporters.

“The important thing to remember is that America must never default on its debt. It never has, and it never will,” McConnell said, adding, “The very basic business of funding the government has become very controversial in my party.”

Congress adopted a comprehensive debt ceiling, the statutory maximum of debt the government can issue, in 1939, intending to limit its growth. The measure has not had that effect, as, in practice, Congress has treated the annual budget process separately from the debt ceiling, in essence, agreeing to cover the costs of previously approved spending.

The Republican plan calls for balancing the federal budget in 10 years by capping discretionary spending at 2022 levels.

In the meantime, House Republicans are vowing to reject sweeping government funding bills from Senate Majority Leader Schumer, like the $1.66 trillion bipartisan omnibus package that Congress passed late last year.

“Political brinkmanship with the debt limit would be a massive hit to local economies, American families and would be nothing less than an economic crisis at the hands of the Republicans.” Schumer said in a statement.

“We are optimistic that Democrats will come to the table and negotiate in good faith,” said Republican Representative Cline, who leads a conservative task force on the budget and spending. “There’s a lot of room to negotiate when it comes to steps that can be taken to address the fiscal crisis that we find ourselves in.”

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