WASHINGTON: Negotiations between Democrats and Republicans to avert a potential US debt default made progress on Friday, and they received some extra breathing room as the Treasury Department pushed back the anticipated X-date, the day when the government would run out of money.
Treasury Secretary Janet Yellen announced that the new X-date is June 5, instead of June 1, in the event that Congress fails to raise the debt ceiling, which allows for increased government borrowing.
However, Yellen emphasized that the extended deadline does not diminish the urgency to resolve the standoff in Congress. In a letter to top Republican Kevin McCarthy, she cautioned that waiting until the last minute to address the debt limit could have serious consequences, including harm to business and consumer confidence, increased borrowing costs, and negative impacts on the United States’ credit rating.
While there were signs of optimism, the details of a potential deal remain unconfirmed. Reports suggest that the emerging agreement may include a two-year extension of the government’s borrowing authority, eliminating the need for a similar situation before the 2024 presidential election.
In exchange, Democrats might need to make concessions regarding Republican demands for spending limits on social safety nets and other domestic programs.
US House Speaker Acknowledges Progress in Talks
House Speaker McCarthy acknowledged that progress has been made but emphasized that nothing is agreed upon until all parties reach a consensus. The first-ever US debt default would likely trigger stock market declines, significant job losses, and a recession with far-reaching implications for the global economy.
Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), highlighted the importance of a swift resolution to the debt issue, referring to the US Treasury market as an anchor for the global financial system that needs to remain stable.
As members of Congress embark on a ten-day recess for the Memorial Day holiday weekend, efforts to avoid a catastrophe continue.
President Joe Biden and Speaker McCarthy are both committed to reaching a deal before June, according to Wally Adeyemo, the deputy Treasury secretary. Adeyemo stressed that failure to secure an agreement would have catastrophic consequences for all Americans.
The debt ceiling raise is typically a routine accounting measure that allows the government to borrow money to cover existing expenses outlined in the budget. However, this year, Republicans have sought to leverage the debt ceiling to push for rollbacks of Democratic spending priorities, leading to heightened tensions.
The White House accuses Republicans of holding the economy hostage, while Republicans argue that they are taking responsibility for the national debt.
Democratic leaders and economists warn of the dangers of a potential default, and military officials also voiced concern, stating that it would have a significant negative impact on military readiness. While Congress is on recess, lawmakers will be notified with a 24-hour notice if they are required to return for a vote.
