WASHINGTON, Jan 19 (Reuters) – The U.S. government reached its $31.4 trillion borrowing limit on Thursday amid a standoff between the Republican-controlled House of Representatives and President Joe Biden’s Democrats that could lead to a fiscal crisis after few months.
Treasury Secretary Janet Yellen informed congressional leaders, including House Speaker Kevin McCarthy, that her department had begun using emergency cash management measures that could prevent a default by June 5.
Republicans, with a newly won majority in the House of Representatives, aim to use the time until the Treasury Department’s emergency maneuvers run out to impose spending cuts on Biden and the Democratic-led Senate.
Yellen warned that the June date was subject to “significant uncertainty” because of the challenge of forecasting payments and government revenue months into the future.
“I respectfully urge Congress to act immediately to protect the full faith and trust of the United States,” Yellen told congressional leaders in a letter Thursday.
But there were no signs that Republicans or Biden’s Democrats were ready to back down.
Republicans are pursuing a “debt prioritization” plan that would seek to prevent a default by requiring the Treasury Department to prioritize debt payments and possibly other priorities such as Social Security and Medicare if the limit is breached during negotiations. Republicans hope to complete the legislation by the end of March.
Brian Dease, director of the White House’s National Economic Council, on Thursday highlighted the risks of uncertainty about whether the United States will repay its debts to its own economy as well as its global standing.
“It’s not that complicated. It’s not about new initiatives or new opportunities. It’s about fulfilling the obligations that this country has already made,” Dees said in an interview with CNN.
‘EVERY TIME’
The prospect of a move has raised concerns in Washington and on Wall Street about a bitter fight over the debt ceiling this year that could be at least as destructive as the protracted 2011 battle that led to a U.S. credit rating downgrade and years of forced cuts of domestic and military expenditure.
“We will not default on the debt. We have the ability to manage the servicing and payment of our interest. But by the same token, we shouldn’t blindly increase the debt ceiling,” Representative Chip Roy, a leading conservative, told Reuters.
Roy dismissed concerns about troubled markets and the risk of recession.
“That’s what they say every time. It’s like clockwork,” Roy said in an interview. “We are already heading for a recession. The question is what it will look like – unless a combination of monetary policy and fiscal policy saves us from our folly of having spent so much money.”
Congress passed a comprehensive debt ceiling, the legal maximum amount of debt the government could issue, in 1939 with the intention of limiting its growth. The measure had no such effect because, in practice, Congress treated the annual budget process — deciding how much money to spend — separately from the debt ceiling — essentially agreeing to cover the cost of pre-approved spending.
Talks on prioritizing debt and spending aren’t expected to get into full swing until lawmakers return to Washington next week.
The Republican plan calls for balancing the federal budget in 10 years by capping discretionary spending at 2022 levels and using House oversight to identify federal programs that could be eliminated or cut in spending bills expected to come out of the House Appropriations Committee later this year.
Meanwhile, House Republicans are vowing to reject sweeping government funding bills from Senate Majority Leader Chuck Schumer, similar to the bipartisan $1.66 trillion package Congress passed late last year.
White House officials also noted that Republicans in Congress supported multiple increases in the debt ceiling when Republican Donald Trump was president.
“We’re optimistic that Democrats will sit down at the table and negotiate in good faith,” said Rep. Ben Klein, a Republican who chairs a conservative budget and spending task force. “There is a lot of room for negotiation when it comes to steps that can be taken to address the fiscal crisis we are in.”
Reporting by David Morgan and David Loder, additional reporting by Jeff Mason and Doina Chiaku; Editing by Scott Malone, Bradley Perrett and Chizu Nomiyama
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