Biden, McCarthy want two-year debt ceiling deal

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President Joe Biden

The White House and congressional Republicans are reportedly in the final stages of negotiating a deal to increase the U.S. government’s debt ceiling, which currently stands at a staggering $31.4 trillion. The proposed agreement would span a two-year period and entail a spending cap on all non-military and non-veteran expenditures. This information was disclosed by an official within the United States government.

In a promising development, negotiators representing Democratic President Joe Biden and House of Representatives Speaker Kevin McCarthy seem to be on the cusp of reaching a deal. The two sides have found common ground on crucial matters, including spending caps and funding for the Internal Revenue Service and the military.

Despite progress made in negotiations, a key stumbling block remains in the form of work requirements for those receiving federal aid, according to an official familiar with the matter.

Should Congress fail to raise its self-imposed debt ceiling within the next week, a default could ensue, causing a seismic disruption in financial markets and plunging the United States into a profound recession.

According to an anonymous official, the proposed agreement would result in a boost in funding for military and veterans’ discretionary spending, while maintaining non-defense discretionary spending at its current levels. The official requested anonymity due to the sensitive nature of the internal discussions. A biennial extension would effectively obviate the need for Congressional deliberation on the matter until the quadrennial electoral contest of 2024.

According to an official source, the White House is purportedly mulling over the possibility of reducing its proposal to augment funding at the Internal Revenue Service (IRS) in order to recruit additional auditors and focus on affluent individuals.

According to a second U.S. official, the funding for defense and veteran affairs aligns with the budget proposed by President Biden earlier this year.

The accord, if reached, would entail a plethora of intricacies that would require meticulous attention and resolution in the forthcoming weeks and months.

The task at hand for each party member is to convince their colleagues in the closely split Congress to support a prospective agreement. This is no easy feat, as the far-right Republicans have made it clear that they will not endorse any deal that does not include extensive spending cuts, while progressive Democrats are pushing back against the implementation of fresh work requirements on anti-poverty programs.

A bipartisan agreement is the sole means of advancing forward. On Thursday, Biden expressed his belief that a mutually beneficial agreement can be reached, one that both propels progress and safeguards the diligent citizens of this nation.

According to Representative Patrick McHenry, a Republican negotiator, both parties have thoroughly expressed their concerns and have a clear understanding of each other’s perspectives.

In a statement to the press on Thursday evening, he emphasized the gravity of the ongoing debate, stating, “It is for this reason that we find ourselves persevering at this late hour, grappling with weighty matters of great significance.”

The ambiguity surrounding the timeframe for legislative action has contributed to the intricacy of the matter. Despite being warned that it may not be able to fulfill all its obligations as early as June 1, the Treasury Department announced on Thursday that it would be vending $119 billion in debt that will mature on that very date. This move has led some market observers to speculate that the aforementioned deadline may not be as inflexible as previously thought.

Enduring Polarization

Fitch Ratings issued a warning this week, indicating that the credit rating of the U.S. federal government could be downgraded due to the ongoing standoff. This could result in an increase in the government’s borrowing costs and a potential decline in the United States’ position as the foundation of the worldwide financial system.

In a manner reminiscent of a standoff that occurred in 2011, Standard & Poor’s has opted to downgrade its rating on U.S. debt.

David Beers, the former chief of sovereign ratings for S&P, expressed his apprehension regarding two critical issues. Firstly, he believed that the political polarization in the country was bound to persist. Secondly, he was concerned about the escalating trajectory of debt. Our expectations, if anything, have been exceeded on both counts. Without a shadow of a doubt, the decision made was the correct one.

As the Memorial Day holiday beckons, the majority of legislators have departed from the nation’s capital. However, their esteemed leaders have issued a stern caution, advising them to remain on standby for voting procedures once a consensus has been reached.

Despite projections indicating that fast-growing health and retirement programs will contribute to the increase of U.S. debt levels in the years to come, it is important to note that these programs will remain unaffected.

The proposed tax hikes on corporations and affluent individuals by President Biden have been met with resistance from the Republican party. Conversely, the President has shown reluctance towards the Republican’s propositions to tighten work prerequisites in certain antipoverty initiatives and relax regulations on oil and gas drilling.

Late on Thursday, Republican negotiator Representative Garret Graves expressed that the White House is declining to engage in discussions regarding work requirements, a stance he deemed as “crazy.” The ongoing debate between the two factions regarding the allocation of funds for social security and Medicare versus work requirements remains a contentious point, as per his statement.

According to House leaders, legislators will be granted a period of three days to carefully consider the agreement prior to casting their vote. Furthermore, any individual senator possesses the authority to impede progress for a number of days. One Republican, namely Mike Lee, has issued a threat to that effect.

Investors have been left unnerved by the standoff, which has resulted in a staggering $80 million increase in the government’s borrowing costs, as per the Deputy Treasury Secretary, Wally Adeyemo.

The United States is currently under review by multiple credit-rating agencies for a potential downgrade. This development could result in a surge in borrowing expenses.

Source: Reuters

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