US debt crisis drags on
Talks on the borrowing cap have yet to yield a deal. Matthew Partridge reports
The latest talks between US president Joe Biden and Republican leaders have offered “glimmers of hope” about reaching a deal to raise America’s borrowing limit (known as the debt ceiling), say Zolan Kanno-Youngs and Catie Edmondson in The New York Times. But both sides are still far from agreeing a deal and time is dwindling to get an agreement ratified by Congress in time to prevent a default, which could come as soon as 1 June. While Biden is no longer demanding that “negotiating over cuts must not be a condition for raising the limit”, Republicans still want larger reductions than the White House is willing to accept.
Breaking the glass
The Republicans may be willing to threaten to “burn it all down”, betting that the Democrats will be too afraid of the “economic catastrophe” of a default, says Steve Phillips in The Guardian. Biden and his advisors need to “ignore this ransom demand”. After all, some experts argue that there are several ways around the debt ceiling, including challenging the constitutionality of Congressional power to limit government borrowing when it has already approved the spending that the borrowing is intended to fund, as well as more bizarre scenarios such as minting a trillion-dollar coin (a 1997 law technically gives the Treasury the power to mint coins of any denomination). Such steps have previously been considered “too radical or risky”, but Biden is now talking about a legal challenge.
It’s no surprise that the White House is considering “break-glass options”, says The Economist. However, while the “magical workarounds” are all “clever”, and certainly “better than the American government reneging on its debts”, they “do not seem befitting of American government bonds, the world’s most important financial asset”. They would be subject to legal challenge, sowing uncertainty in markets, that the result would be “far from certain” given the Supreme Court’s conservative majority. While these cases dragged on, the US government would be forced to prioritise interest payments, cutting other spending by a quarter.
Time to bring an end to this farce
Democrats are entitled to be angry about the hypocrisy, says Martin Wolf in the Financial Times. The Republicans have been consistently willing to turn a blind eye to the deficits caused by George W. Bush and Donald Trump’s tax cuts. There is also something undemocratic about using the threat of default in an attempt to achieve policies “for which they have been unable to secure decisive electoral victories”. What’s more, even if this crisis is eventually resolved, “repeated plays of this game of chicken make it cumulatively more likely that the crash will indeed happen”.
Quite, says The Times. The uncertainty caused by such brinkmanship is now starting to have an impact on America’s global reputation and potentially harm the dollar’s status as the world’s primary reserve currency. With many hostile regimes “working to erode dollar supremacy”, those on both sides of the aisle need to put aside differences and “find a way to take the perennial risk of debt ceiling crises permanently off the table”.