Biden and McCarthy to Meet on Debt Ceiling as Default Looms

President Joe Biden and House Speaker Kevin McCarthy will meet at the White House on Monday to negotiate a deal to raise the debt ceiling.

Summary

President Joe Biden and House Speaker Kevin McCarthy will meet at the White House on Monday to negotiate a deal to raise the debt ceiling.

• The President and the Speaker have just over a week to avert a default before the government runs out of cash, estimated to be as soon as June 1. Secretary of the Treasury Janet Yellen has said June 1 is the “hard deadline” for a debt limit increase.
• Monday’s meeting is the first one-on-one meeting between the Democratic president and the Republican speaker in months, and comes after a one-on-one phone conversation between the two on Sunday during Biden’s return flight from the G7 summit in Japan.
• The talks come as staff-level negotiations have progressed in fits and starts over the weekend, although both sides remain billions of dollars apart. According to The Hill, “Negotiations appeared to center on a fiscal 2024 cap on spending that could be key to resolving the standoff and has been among Republicans’ demands.”
• Congressional Republicans are united behind McCarthy after he passed a bill that raised the debt limit and cut federal spending, the only legislation raising the debt limit to pass either house of Congress so far. Senate Minority Leader Mitch McConnell is backing McCarthy’s negotiating position.
• The public appears to agree with Republicans’ position that a debt limit increase should come with spending cuts as opposed to President Biden’s argument that Congress should pass a so-called “clean” debt ceiling even though that proposal does not have support in either house of Congress.
• A May Harvard/Harris poll found 57 percent of voters thought Democrats should abandon their uncompromising position, compared to 43 percent who thought the GOP should cave.
• The negotiations come at a time when public confidence in President Biden’s handling of the economy is at a nadir. Just 33 percent of Americans approve of his management of the economy according to an AP/NORC poll released on Monday.
• In contrast, Speaker McCarthy’s overall approval rating has climbed to “an all-time high,” jumping 10 points since his dayslong election to the speakership in January. A plurality of US adults – 46 percent – approved of his job performance in a recent YouGov poll, compared to 36 percent who disapprove.
• At a press conference before his departure, Biden gave into pressure from progressives and endorsed a fringe left-wing legal theory that the 14^th Amendment’s provision for preserving the “validity of the public debt of the United States” permits the president to ignore Congress and unilaterally raise the debt limit.
• McCarthy attributed Biden’s “pivot” to a press conference led by Sen. Bernie Sanders demanding Biden use the 14^th Amendment to short-circuit negotiations. For his part, Biden told reporters “I can’t guarantee that they wouldn’t force a default by doing something outrageous.”
• Even a proponent of this theory described it as the “least unconstitutional” option, and it’s far from clear whether the markets would accept this power grab or whether it would tank the economy. Regardless, the Supreme Court’s conservative majority would likely not look kindly upon an attempt by Biden to purloin Congress’s power of the purse in this manner.
• The failure to raise the debt limit would mean the US cannot continue to borrow money and would default on its debts. A default would dramatically raise borrowing costs and could have a direct and immediate impact on prices and mortgages for millions of Americans.
• A federal default would be devastating for the US economy – even a week-long breach of the debt limit could “wipe out roughly 1.5 million jobs” – and would quickly affect the rest of the world. “No corner of the global economy will be spared” if the US defaults, Mark Zandi, the chief economist for Moody’s Analytics, told AP News.

• Politico called the debt-limit standoff a test of “whether the president’s theory of governance can continue to work.” Politico attributed what it called “Biden’s reluctance to play hardball” to the assumptions that voters would side with the president in the debt limit fight – which, at least according to the polls cited above, they have not.
• The New York Times noted Biden and McCarthy “remain far apart on key issues, including on caps for federal spending, new work requirements for some recipients of federal antipoverty assistance and funding meant to help the I.R.S. crack down on high earners and corporations that evade taxes.”
• The Washington Post reported, “traders have grown accustomed to Washington periodically flirting with disaster over the debt ceiling before reaching a deal. But some analysts say that sense of calm could soon evaporate. With the debt ceiling deadline fast approaching, investors are “probably going to start getting a little more nervous,” said Alec Phillips, the chief U.S. political economist at Goldman Sachs Research.”

• The Wall Street Journal summarized how we got here: “Republicans have called for spending cuts as a condition for any debt-ceiling increase and passed a bill in April to do so…Democrats for months declined to negotiate, saying the debt ceiling should be raised with no strings attached, but began engaging seriously in talks last week as the deadline approached.”
• McCarthy highlighted this long delay in a Sunday morning interview on Fox Business’ “Sunday Morning Futures,” as the New York Post noted. McCarthy pointed out Biden refused to negotiate for 97 days and said, “It seems as though he wants a default more than he wants a deal.”
• National Review noted the so-called “14^th Amendment option” that Biden is considering was called a “constitutional crisis” by his own Treasury Secretary and was ruled out by his Press Secretary just this month. As Andy McCarthy put it succinctly: “Who would buy U.S. debt that has not been authorized by Congress?”

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© Dominic Moore, 2023