WASHINGTON, Jan 19 (Reuters) – The U.S. government reached its $31.4 trillion debt ceiling on Thursday, which could lead to a financial crisis, amid a standoff between the Republican-controlled House of Representatives and President Joe Biden’s Democrats over raising the ceiling. A few months.
Treasury Secretary Janet Yellen told congressional leaders, including House Speaker Kevin McCarthy, that her department has begun using extraordinary monetary management measures that could prevent a default until June 5.
Republicans, with their newly won House majorities, aim to bide their time to appropriate spending cuts from Biden and the Democratic-led Senate until the Treasury’s emergency maneuvers are over.
Corporate leaders and at least one credit rating agency have warned that a prolonged standoff could destabilize markets and destabilize an already shaky global economy.
Yellen warned The June date is subject to “considerable uncertainty” because payments and government revenues are months in the future.
“I respectfully urge Congress to act immediately to protect the full faith and goodwill of the United States,” Yellen said in a letter to congressional leaders on Thursday.
But there’s no sign that either Republicans or Biden’s Democrats are ready to budge.
Republicans are trying to use their narrow House majority and the debt ceiling to force cuts in government programs. The idea has been explored in past stages, but financial experts have questioned its viability.
The White House rejects the idea out of hand.
“There will be no negotiations on the debt ceiling,” White House deputy press secretary Olivia Dalton reiterated on Air Force One on Thursday. “Congress should resolve this without conditions, as it did three times under (former Republican President) Donald Trump.
The prospect of brinkmanship has raised concerns in Washington and Wall Street about a bruising fight over the debt ceiling this year that could become as disruptive as the protracted war of 2011. Domestic and military spending cuts.
Moody’s Investors Service on Thursday said it hoped a deal could be reached to avoid a congressional default, but negotiations could go down to the wire, contributing to market volatility.
“We’re not going to default on the debt. We have the ability to manage services and pay our interest. But we shouldn’t blindly increase the debt ceiling,” Representative Chip Roy, a leading conservative, told Reuters.
Roy dismissed concerns about volatile markets and the risk of recession.
“That’s what they say every time. It’s like a bellwether,” Roy said in an interview. “We’re already headed for a recession. The question is what it will look like — until a combination of monetary policy and fiscal policy saves us from the folly that spent so much money.”
But corporate leaders expressed concern over the stance.
“I’m concerned, and I’m going to take any opportunity I can to communicate with people in Washington and try to make sure they understand that we, as a company, don’t think this is a thing to be played around with,” Goldman Sachs Group Inc. (GSN) Chief Executive David Solomon said in an interview Thursday.
Senate Republican Leader Mitch McConnell predicted the debt ceiling would be lifted in the first half of 2023 under terms negotiated by Congress and the White House.
“It’s always a controversial initiative,” McConnell told reporters at the University of Louisville.
“The important thing to remember is that America should never pay back its debt. It never has and it never will,” McConnell said, adding that “the basic business of funding the government has become very controversial in my party.”
In 1939, Congress adopted the comprehensive debt ceiling as the legal maximum amount of debt the government could issue in order to control its growth. In practice, the move did not have that effect, as Congress used the annual budget process — separate from the debt ceiling — to determine how much money to spend — in essence, to offset previously authorized spending.
The Republican plan balances the federal budget over 10 years by capping discretionary spending at 2022 levels.
Meanwhile, House Republicans are vowing to reject Senate Majority Leader Chuck Schumer’s government funding bills, like the $1.66 trillion bipartisan omnibus package passed by Congress late last year.
Schumer, the Senate’s top Democrat, said in a statement: “A political crisis over the debt ceiling will have a devastating impact on local economies, American families and will be nothing less than an economic crisis in the hands of Republicans.”
“We’re hopeful that Democrats will come to the table and negotiate in good faith,” said Republican Rep. Ben Kline, who leads a conservative task force on budget and spending. “There is a lot of room for negotiation when it comes to the steps that can be taken to solve the financial crisis that we are seeing.”
Reporting by David Morgan and David Lauder, with additional reporting by Lannah Nguyen, Jeff Mason and Doina Chiaku; Editing by Scott Malone, Bradley Perrett and Chisu Nomiyama
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