No penetration into the D-7 from potential default, elected officials leave for the long weekend
a Bankruptcy risk…and parliamentary recesses: One week before a possible default by the United States, elected members of Congress returned to their constituencies on Thursday, as there was no agreement with President Biden on Raise the debt ceiling. But they are willing to return urgently for a possible vote if an agreement is reached by the teams of negotiators who will do so Continue talking in Washington.
Despite days and nights of discussions, the teams of the Democratic leader and the Republican camp negotiators have not yet reached a compromise on the budget. But a spokeswoman for the executive branch, Karen Jean-Pierre, confirmed on Thursday that these negotiations had been “productive”, seeing in them evidence of a “way forward” towards an agreement.
“Each side will have to understand that no one will get everything they want,” she added. And President Joe Biden was optimistic, stressing that there would be no “default”.
Without an agreement, as of June 1, the United States could find itself in default, that is, unable to meet its financial obligations, whether it be a matter of salaries, pensions, or payments to its creditors.
Left and right wings indignant
Like almost all major economies, the United States lives on credit. But it is an American privacy, as Congress has the right to vote to raise the maximum amount of public debt that the world’s largest economy is allowed to accumulate, currently set at about $31,000 billion.
This time, the Republicans refuse to raise this famous “ceiling” without conditions, demanding drastic budget cuts before giving the green light. Democrats refuse. Each camp accuses the other of being responsible for this situation.
The main Republican protagonist in this case, Kevin McCarthy, uses and abuses an allegory comparing Democrats to a kid who’s over his credit card limit. “After a while, do you continue like this or try to change his behavior?”, he regularly gushes to the press.
On Thursday, as the draft compromises began to circulate, elected hardliners from the Freedom Caucus and Progressive Democrats gave a voice, calling on their camp not to give up. “At the end of the day, no one is going to be completely satisfied, and that’s how democracy works,” McCarthy said. The balance is to find cuts that do not antagonize the majority of centrist Democrats while appeasing moderate Republicans.
The US rating is under review
A unique atmosphere prevails in Washington: After a few days of a potentially catastrophic default, most observers seem confident of a deal.
In the absence of a major breakthrough in negotiations, elected representatives of Congress have left the US capital as the Memorial Day long weekend approaches. But the Speaker of the House demanded that they prepare to return to Washington urgently if an agreement was reached in their absence. In fact, it is very common to make last-minute compromises on this type of file.
The economic world showed the first signs of a shake-up. Ratings agency Fitch issued a warning on Wednesday placing the US’s AAA rating “on watch”. This unprecedented situation may have dire consequences for the US and global economies. For the first time, holders of US Treasury bonds, the king of global finance, could no longer redeem their investment.
The repercussions will extend beyond the realm of economics. On Thursday, the US Chief of Staff, General Mark Milley, warned of “national security consequences.” He stressed that “the salaries of the forces, weapons systems, and contracts, all of this will be disrupted,” considering that this will harm the “readiness, capabilities, and morale” of the army.
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