The topic quickly became a hot topic in local media, which gladly exaggerated, calling the scenario “catastrophic” and threatening “irreparable consequences” for the economy, markets and ordinary Americans.
Despite the threatening sound, it’s too early to talk about the threat of a real default. This is not the first time that US authorities have approached the limit set by Congress. Sometimes the issue of raising the borrowing limit has been decided on the eve of the deadline, but never in US history has a default occurred. Rather, the question is what concessions the administration of President Joe Biden and the opposing Republican Party can get from each other in this game of nerfs.
However, since the negotiations, in fact, have not yet started and the positions of the parties are infinitely far apart, there really isn’t much time. Also, in the second half of the month, Biden will be busy traveling to Japan and Australia.
But his Republican adversaries, who control the House of Representatives, have already taken the first step. They approved a bill allowing an increase in public debt, but only in exchange for major spending cuts. The media considered it a success, as in doing so McCarthy and Co. showed their willingness to push their ideas and negotiate – it is so far the only bill to increase public debt in the Congress. Consequently, the Speaker of the House of Representatives, in response to Yellen’s letter, said the problem lies with the Biden administration, which “refuses to do its job.”
Nevertheless, Democrats have already made it known that they will block the document in the Senate. At Biden’s suggestion, Democratic Party leaders have so far adamantly refused to tie up the national debt ceiling to any other initiative, including budget cuts.
As the practice of the past decades shows, Republicans, traditionally skeptical of raising the national debt ceiling, are unlikely to agree to it unconditionally. As news resource axios.com points out, some Democratic congressmen have already signaled that, contrary to Biden’s position, they are willing to explore compromises that combine an increase in the national debt ceiling with measures to reduce the budget deficit. All of this is expected to be discussed at a meeting at the White House on May 9, to which Biden has invited congressional leaders. The United States Congress first legislated a debt ceiling in 1917. The country’s Department of Finance cannot issue new government bonds to finance state activities beyond this limit. Exceeding it could deprive the US federal government of the ability to make many budgetary payments, as well as debts and interest on them. Over the past century, Congress has repeatedly raised the national debt ceiling, although this is often the subject of bitter political bargaining. In 2008, the US national debt exceeded 10 trillion dollars, and in 2017 – 20 trillion. The last time the US authorities raised the borrowing limit in December 2021: from 28.9 to 31.4 trillion.
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