The administration of President Joe Biden warned again Sunday that defaulting on the US debt would have “catastrophic consequences” for the US economy. Negotiations with Republicans regarding a debt agreement are expected to resume next week.
There are alarm bells ringing about the possibility of the US government defaulting for the first time, but the date at which it would cease to be able pay its bills is uncertain.
The White House insists that credit ratings should never be negotiated.
The two sides remain at a deadlock despite the warnings of government officials, bankers and others that a financial default could have dire consequences. This includes a possible recession or global financial contagion.
Treasury Secretary Janet Yellen said a default was possible by June 1, but the nonpartisan Congressional Budget Office projected the date as Friday, June 15.
Wally Adeyemo was the Deputy Treasury Secretary on CNN’s “State of the Union” Sunday.
He warned that if Congress did not raise the debt ceiling by default time, the country would be plunged into a severe recession.
“The United States of America have never defaulted on its debt — and we cannot.”
Biden said he wanted a “cleaner” increase of the debt limit, but Republicans insisted that any extension of borrowing authority for the country, which is currently capped at 31.4 trillion dollars (US), would come with significant spending cuts.
“It is time to get spending back to pre-Covid levels, then we can discuss raising the debt limit,” Byron Donalds said on FOX News Sunday. Donalds is a Republican Representative from Florida.
“If Joe Biden does not bring anything to the table and if he only sits there with his hands in the pockets… then it is he who will lead our nation into default.”
Donald Trump, former president, encouraged Republican legislators to resist a default in the event that Biden refused to agree to “massive reductions.”
Negotiations that are ‘constructive’
The much-anticipated round of debt ceiling talks between Biden, House Speaker Kevin McCarthy and Republican leaders was postponed to the following week.
Adeyemo confirmed that “constructive negotiations” were taking place at the staff-level, but he disputed assertions that Biden did not want to deal with the ballooning US debt.
Adeyemo said: “The President’s laid out an outline that includes $3 Trillion in debt relief in 10 years.” He was referring to Biden’s budget request, announced in March. It included tax increases on businesses and the wealthy.
He said that Congressional leaders need to find ways to reach a fiscal agreement. “But as we have this conversation, there’s no reason why we shouldn’t increase the debt limit to prevent default, which could lead to massive recession and cost us millions in jobs,” he added.
Lael brainard, director of White House’s National Economic Council (NEC), insisted that an agreement would be reached.
Brainard, former vice-chair of the Federal Reserve, said on CBS’s “Face the Nation” Sunday program that “we expect Congress to do whatever is necessary” in order to avoid a possible default.
Biden briefly spoke to reporters on Saturday, when he was in Delaware.
He said that the talks were progressing. “There was a real discussion” but he said the two sides “were not there yet.”