Joe Biden called on Republicans to “take the threat of default off the table” after failing to reach a breakthrough in his first big meeting with congressional leaders over a looming fiscal crisis in the world’s largest economy.
The US president’s appeal sets the stage for negotiations that will dominate US politics and potentially reverberate around global financial markets over the coming weeks. White House staff and congressional aides are expected to hold new discussions in the coming days, and party leaders are due to meet Biden again on Friday for another session.
US Treasury secretary Janet Yellen has warned the US could face a historic and damaging default on its bonds and other obligations in early June if Congress fails to act to raise the country’s $31.4tn debt ceiling, at a time when financial markets are already jittery over the impact of banking turmoil and high interest rates.
Biden said: “Let’s discuss what we need to cut, what we need to protect, what new revenue we can raise and how to lower the deficit to put our fiscal house in order.”
He added: “But in the meantime . . . we need to take the threat of default off the table . . . this nation has never defaulted on its debt. It never will.”
Biden and Democratic leaders — including Chuck Schumer, the Senate majority leader, and Hakeem Jeffries, the House minority leader — say Congress needs to raise the debt limit without conditions in order to pay for fiscal decisions previously made by lawmakers.
But Republicans insist spending curbs and other conditions must be attached to any debt limit increase. After the meeting, Kevin McCarthy, the Republican House speaker, said there had been “no new movement” and “everybody reiterated the positions they were at”.
Last month, McCarthy corralled House Republicans to pass a bill that would increase the debt limit until March of next year alongside deep spending cuts — a proposal backed by many of his fellow party members in the Senate — strengthening his hand in the talks. But Biden dismissed its viability, take a swipe at McCarthy.
“I think he knows better. I think he knows that default would be disastrous. And I think he knows what he’s passed could not possibly pass anywhere in the Congress. It’s dead on arrival,” Biden said.
With no deal in sight, Biden said the administration had been considering invoking the 14th amendment of the US constitution, which states that the validity of the nation’s public debt “shall not be questioned”, to over-rule the debt-ceiling law.
But the president said it would not help in the short term, because the White House would only move in that direction in the federal courts approved its use. Biden said officials had not considered minting a $1tn coin that could be deposited at the Federal Reserve and used to pay for its obligations.
Some lawmakers have suggested that a short-term suspension or increase of the borrowing limit until the end of September to allow more time for talks would be needed, but both sides rejected such a suggestion before Tuesday’s meeting. “We shouldn’t kick the vote. Let’s just get this done now,” McCarthy told reporters.
Karine Jean-Pierre, the White House press secretary, said: “A short-term extension is not our plan, either. That is not our plan.”
In a sign of Wall Street’s growing anxiety that the government could default on its debt, the Treasury Borrowing Advisory Committee, an industry group that advises the government on debt management, warned it was “deeply concerned about the lack of resolution”.
It cautioned that uncertainty was weakening demand at auctions of US Treasury bills and that market participants were undertaking “significant preparations” to reduce exposure in case of a possible default.
John Williams, president of the Federal Reserve Bank of New York, on Tuesday urged Congress and the Biden administration to “take responsibility” in raising the debt ceiling, warning in public remarks that failure to do so would push the US economy into “uncharted territory”.
Private-sector estimates for the so-called X-date reflect uncertainties surrounding the deadline for any deal.
Economists at Deutsche Bank and Citigroup maintain the government is likely to have sufficient funds to cover obligations until late July. Should cash receipts prove higher than expected, Deutsche said authorities could have enough until July 31, after which large federal payments expected to come due on August 1 would necessitate a deal.
The Bipartisan Policy Center pointed to June 15 as a crucial date. The think-tank said that if government revenues proved sufficient to meet obligations until then, the Treasury would probably be able to ward off a default until at least June 30, after which $145bn could be freed up by suspending investments in some retirement funds.
