Risk of bankruptcy … and recess: A week before a possible US default, congressmen-elect returned to their constituencies on Thursday in the absence of an agreement with President Biden on raising the congressional debt ceiling. However, they are ready to urgently return to a possible vote if the negotiating teams, who will continue talks in Washington, reach an agreement.
Despite days and nights of discussions, the Democratic leader’s teams and Republican negotiators have yet to find a budget compromise. But those negotiations are “productive,” Executive spokeswoman Karine Jean-Pierre said Thursday, showing there was “a way forward” toward an agreement.
“Each side needs to understand that no one is going to get everything they wanted,” she added. And President Joe Biden was optimistic and assured that there would be “no default”.
However, without a deal, as of June 1, the United States could find itself in default, unable to meet its financial obligations, whether related to salaries, pensions, or repayments to its creditors.
The angry right and left wing
Like almost all major economies, the United States lives on credit. But it is an American peculiarity, it is the prerogative of Congress to vote on increasing the maximum amount of public debt that the world’s largest economy is allowed to accumulate, which is currently set at around $31 trillion.
Republicans this time refuse to raise that famous “ceiling” unconditionally, demanding drastic budget cuts before giving the green light. The Democrats refuse. And each camp accuses the other of being responsible for this situation.
The main Republican protagonist in this case, Kevin McCarthy, uses and abuses an allegory by comparing the Democrats to a child who blithely breaks his credit card limit. “After a while, do you continue like this or do you try to change his behavior? ‘ he addresses the press very regularly.
As draft compromises circulated Thursday, elected ultraversators from the Freedom Caucus and progressive Democrats took the floor, urging their camp not to back down. “Ultimately, no one is going to be completely satisfied, and that’s how democracy works,” McCarthy said. The balancing act is about finding cuts that don’t upset the majority of moderate Democrats while satisfying moderate Republicans.
US rating under review
There is a unique atmosphere in Washington: days after a potentially catastrophic default, most observers seem confident and confident that an agreement will be reached.
In the absence of a major breakthrough in the negotiations, the elected representatives of Congress have therefore left the American capital as the Memorial Day long holiday weekend approaches. However, the House leader said it was ready to urgently return to Washington should an agreement be reached in their absence. In fact, it is very common for this type of file to be compromised at the last minute.
The business world showed the first signs of tremors. The rating agency Fitch warned on Wednesday that the US AAA rating was “under observation”. This unprecedented situation would have potentially catastrophic consequences for the American and global economy. For the first time, holders of US Treasuries, the king of global finance, could not recover their investment.
And the impact would go beyond the business world. There will also be “consequences for national security,” warned the American chief of staff, General Mark Milley, on Thursday. “Troop pay,” “weapons systems, contracts, all of that would be disrupted,” he said, estimating that it would hurt the army’s “readiness, capabilities and morale.”