Threat of debt default raised as Republicans 'pause' talks

By Al Mayadeen English
Source: Agencies
20 May 2023 09:27

If the US defaults on its debt, it would have a tremendous impact on the global markets.

Speaker of the House Kevin McCarthy, R-Calif., criticizes President Joe Biden's policies and efforts on the debt limit negotiations as he holds a news conference at the Capitol in Washington, Wednesday, May 17, 2023. (AP)

US Republicans called for negotiations on raising the debt limit on Saturday to be "paused" in light of the difficulty of resolving some serious "differences" with the White House.

"We've got to pause," Republican leader Kevin McCarthy told reporters in Congress, adding, "we can't be spending any more money next year."

Investors have been paying close attention to the talks, while US stock indexes have slightly fallen after the news broke out.

For the US to default on its debt, it would have a tremendous impact on the global markets.

So far, the demand for concessions on part of the GOP involve the White House signing up for budget cuts in exchange for Republican backing to raise the debt ceiling.

Democrats, on the other hand, have been calling for a "clean" raise of the debt limit, which would prevent a financial meltdown of the US economy ahead of the June 1 deadline - a day on which many predict the US will start defaulting if the debt ceiling is not raised.

Yesterday, White House officials said that serious differences were impeding both sides from reaching an agreement.

"There are real differences between the parties on budget issues and talks will be difficult," a White House official said in a statement, adding "the President's team is working hard towards a reasonable bipartisan solution that can pass the House and the Senate."

Although there "continues to be real differences," "the president is confident that there is a path forward," according to White House Press Secretary Karine Jean-Pierre.

On Friday, the Punchbowl News political website reported that the chief negotiators in the talks, congressmen Garret Graves and Patrick McHenry, walked out of the talks and said they have no plans to return

"We have a gap on many issues," McHenry said, according to NewsNation.

In sum, the cuts Republicans are demanding are estimated to amount to $130 billion. If the White House agrees to effect these cuts, they will receive backing from the GOP on raising the debt limit.

They are also demanding that domestic energy production projects be expedited, the process for obtaining permits for pipelines and refineries to be eased, and that unspent Covid relief funds be withdrawn.

On Wednesday, Deputy Secretary of the Treasury Wally Adeyemo said that the US Congress' inaction in enabling the US to meet its obligations by raising the debt ceiling is the "greatest threat" to the US economy since the global pandemic.

He further warned that failing to raise the debt ceiling would lead up to a recession and would severely impact small businesses and trigger a massive wave of company closures.

A week ago, the US Congressional Budget Office warned that if lawmakers fail to raise the amount of debt the country is legally allowed to build up, the US will be faced with a "significant risk" of defaulting within the first two weeks of June.