The US is at risk of its first-ever default if a deal cannot be reached over raising the debt ceiling, with uncertainty over the actual date the government would stop being able to pay its bills. Congressional Republicans are demanding budget cuts in exchange for lifting the debt ceiling, while the White House has insisted that the nation’s credit should not be up for negotiation. Treasury Secretary Janet Yellen has warned a default could occur by June 1, while the nonpartisan Congressional Budget Office forecast on Friday the date of June 15. The two sides have remained at an impasse despite weeks of warnings from government officials and bankers that a default could unleash drastic consequences, including a possible recession and likely global financial contagion.
Former president Donald Trump has encouraged Republican lawmakers to hold out for default if President Biden doesn’t agree to “massive cuts.” Biden has stated he wants a “clean” hike of the debt ceiling, but Republicans are insisting any extension of the country’s borrowing authority, currently capped at $31.4tn, come with substantial curbs on spending. A much-anticipated new round of debt-ceiling talks between Biden and Republican leaders, including House Speaker Kevin McCarthy, was postponed until the coming week.
Deputy Treasury Secretary Wally Adeyemo warned that if Congress failed to raise the debt limit by the time of default, the US would go into a recession and it would be catastrophic. He added that as the two sides negotiate a fiscal policy deal, there was no reason they should not raise the debt limit and prevent default in this country, a default that could lead to a massive recession that would cost millions of jobs. Lael Brainard, director of the White House’s National Economic Council, maintained that a deal would be reached. “We expect that Congress will do what is necessary” to avoid a default, she said.
