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Prospects dim on quick solution to debt ceiling standoff

Without an agreement, the country is poised to default on its debts by June 1, according to some experts, including the treasury secretary.

WASHINGTON (CN) — A quartet of top congressional leaders are meeting Tuesday with President Joe Biden to discuss federal spending, showing a willingness to negotiate as time runs out for the country to raise the debt ceiling so that it can continue paying its bills.

Treasury Secretary Janet Yellen has predicted that the country will by June 1 have exhausted any accounting measures that have enabled it to avert a default on its loans, having already hit the debt limit of $31.4 trillion in January.

Dragging out discussions in a move that Democrats cast as brinkmanship, Republicans have refused to sign off on a higher debt limit without drastic spending cuts and a host of GOP policy priorities, such as reimplementing work requirements for welfare programs and striking tax incentives for renewable energy generation.

David Sacco, an economics professor at the University of New Haven, noted in an interview that brinkmanship is typical when the House and the presidency are not held by the same political party.

Expecting, however, that lawmakers know the harm that a loan default would do to the economy, Sacco predicted that they will take care to avoid catastrophic results.

“I doubt the politics will allow it to get that far,” he said. “I suspect it’ll get resolved over the next few weeks.”

Sacco likened the political wrangling over the debt ceiling to another common tool in Congress.

“When you’re in power you hate the filibuster, but when you’re out of power you love it,” he said. “If you think about the debt ceiling, it kind of operates in a similar way. … I know it frustrates people to think that things that slow down change are good, but I think we need more compromise.”

No immediate resolution is expected following Biden’s highly anticipated meeting Tuesday with House Speaker Kevin McCarthy, House Minority Leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer and Senate Minority Leader Mitch McConnell.

Democrats have said the proposal passed by House Republicans is a nonstarter. Though it would raise the debt limit by roughly $1.5 trillion until March 31, the government would have to reduce federal spending to 2022 levels and limit growth to just 1% annually over the next decade.

The White House has said discussions of the debt ceiling and spending priorities should be separate. In addition to hammering Republicans for the political cuts, officials have parroted the talking point that the U.S. is “not a deadbeat nation” and pays its bills. Biden is not expected to discuss the meeting Tuesday evening, but he is scheduled to speak Wednesday in New York to criticize the GOP proposal.

“They are manufacturing a crisis that shouldn’t be,” press secretary Karine Jean-Pierre said in a briefing Tuesday. “This is a manmade crisis that the speaker is leading.”

Defaulting on the federal debt would have dire ramifications for the U.S. economy and could trigger a recession.

“As every treasury secretary has known, the only option that leaves our economy in good shape in our financial system is raising the debt ceiling and making sure Congress stands behind the basic principle that America pays its bills,” Yellen told CNBC on Monday.

David Rothkopf, a political commentator who served in the Clinton administration, wrote online that Republicans are being “wildly reckless” by “taking the debt hostage.”

“By portraying what McCarthy is doing as anything other than financial terrorism the media puts its thumb on the scale on his behalf … and contrary to our interests,” he said.

Heading into Tuesday's meeting, Jean-Pierre said Biden will stand firm on the debt ceiling and is not considering a short-term extension.

“This is not negotiable,” she said. “Default is not negotiable.”

Categories:Economy, Financial, Government, National, Politics

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