The United States could default on June 1: how are negotiations going in Congress to avoid a global financial crisis?

The Secretary of the TreasuryJanet Yellen (Joe Biden’s Finance Minister) made it clear to Congress on Monday that the US could default on its debt starting June 1, and default, if lawmakers don’t raise or remove the nation’s debt ceiling by then and avoid what it could turn into a global financial crisis.

The fight for the debt ceiling has ideological biases as the president has just announced his re-election bid.

Republicans have placed conditions on Biden to raise the debt ceiling, in particular drastic spending cuts and the reversal of some aspects of the president’s agenda: student loan forgiveness and green energy tax credits; two issues at the antipodes of the opposition agenda.

In a letter to House and Senate leaders, Yellen urged congressional leaders to “protect the full confidence and credit of the United States by acting as soon as possible” to address the $31.4 trillion cap in his legal authority to borrow. He added that it is impossible to predict with certainty the exact date the US will run out of cash.

US could default on its debt in early June, Treasury Secretary Janet Yellen warned on Monday politicians struggle as a result of the increase in the state’s debt limit.

Last week, Republicans voted to raise the national debt limit, but with their demands on the table. They consider the president’s spending “excessive”.

Republicans were determined to push the Limit, Save, and Grow Act through the lower house of Congress to strengthen their negotiating position with Biden, who he refused to accept spending cuts.

But that law has no chance of becoming law as Democrats, who control the Senate and the White House, oppose it.

Although the United States he reached his loan limit in January of $31.4 trillion, the Treasury took extraordinary measures that allow you to continue financingor government activities.

If the debt ceiling is not raised or removed by Congress before the current one is exhausted, the government risks defaulting on its payment obligations, with profound implications for the national and global economy.

“Our best estimate is that we will not be able to continue to fulfill with all government obligations in early June, and potentially as soon as June 1, if Congress does not raise or suspend the debt limit before that time,” Yellen said in a letter to the Speaker of the House of Representatives, Kevin McCarthy.

“Given the current outlook, it is imperative that Congress takes action as soon as possible to raise or suspend the debt limit to provide long-term certainty that the government will continue to meet its payments,” Yellen said.

According to The New York Times, economists have warned that if the debt ceiling, which limits the total amount of money the United States can borrow, is not lifted, threatens to shake up financial markets and lead the world economy into a financial crisis.

Why the United States it has a budget deficitwhich means that you spend more money than you get, you have to borrow large sums of money to pay your bills. In addition to paying Social Security benefits, along with the salaries of military and government workers, so does the United States they have to pay interest and other payments to bondholders who own their debt.

Despite being the only country that issues dollars, the United States finances itself with debt and not with the issue. The plan is to borrow US$726 billion during the quarter. This is $449 billion higher than expected in January, due to a lower cash balance at the start of the quarter and lower-than-expected tax revenue projections and higher spending.

While Russia’s invasion of Ukraine remains a drag on US economic growth, Treasury officials say the debt ceiling debate represents the greatest risk to the US financial position.

The negotiations

Biden called McCarthy on Monday to invite him to do so meeting on May 9 with the other top Republican and Democratic leaders in Congress.

A source familiar with the negotiations said Biden spoke with McCarthy on Monday about expanding the national debt and avoiding a default.

As leader of the narrow Republican majority in the House of Representatives, McCarthy has primary control over America’s budget issues.

In a statement released on Monday, McCarthy accused Biden to “threaten to push our nation into its first default.” He asked the president and the Senate “to get to work, and soon.” accept spending cuts and avoid the crisis.

“House Republicans are running out of time to avert an economic catastrophe of their own making,” said Brendan Boyle, the top Democrat on the House Budget Committee.

“Today’s update from the Treasury Department must be a wake-up call for President McCarthy,” he added, saying the president has “wasted enough time in the House” to appease his hardline allies.

But House Republicans, in a tweet following the Treasury’s announcement, reiterated the need to “limit Washington’s spending.”

As the fight goes on time flies.

The negotiation timetable is tight, leaving little time for Biden and congressional leaders to reach an agreement on raising the cap. McCarthy is traveling to the Middle East this week. Later this month, Biden will attend the Group of 7-nation leaders’ summit in Japan and then travel to Australia for a summit with the leaders of Japan, India and Australia.

ap