A risk of bankruptcy… and parliamentary holidays: one week before a possible default in payment by the United States, the elected members of Congress returned to their constituencies on Thursday, for lack of an agreement with President Biden on the raising of the ceiling of the debt. But they are ready to return urgently for a possible vote if an agreement is reached by teams of negotiators who will continue to discuss in Washington.
Despite days and nights of discussions, the Democratic leader’s teams and the Republican camp’s negotiators have not yet found a budget compromise. But these negotiations are “productive”, assured Thursday the spokesperson for the executive, Karine Jean-Pierre, seeing in it proof that there was “a way forward” towards an agreement.
“Each side is going to have to understand that no one will get everything they wanted,” she added. And President Joe Biden was optimistic, assuring that there would be “no default”.
Without an agreement, the United States could however well find itself as of June 1 in default of payment, that is to say unable to honor its financial commitments, whether it is a question of salaries, pensions, or repayments to their creditors.
The disgruntled right and left wings
Like almost all major economies, the United States lives on credit. But it is an American peculiarity, it is the prerogative of Congress to vote to raise the maximum amount of public debt that the world’s largest economy is authorized to accumulate, currently set at some 31,000 billion dollars.
The Republicans refuse this time to raise this famous “ceiling” without conditions, demanding drastic budget cuts before giving the green light. The Democrats refuse. And 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 the Democrats to a child blithely exceeding the limit on his credit card. “After a while, do you continue like this or do you try to change his behavior? “, he launches very regularly to the press.
On Thursday, as draft compromises began to circulate, elected ultraversators from the Freedom caucus and progressive Democrats gave voice, calling on their camp not to give in. “At the end of the day, no one will be fully satisfied, and that’s how democracy works,” McCarthy said. The tightrope walker is about finding cuts that don’t antagonize a majority of centrist Democrats while satisfying moderate Republicans.
US rating under review
A singular atmosphere reigns in Washington: a few days from a potentially catastrophic default, most observers seem confident, certain that an agreement will be found.
In the absence of a major breakthrough in the negotiations, the elected representatives of Congress have thus left the American capital as the long holiday weekend of “Memorial Day” approaches. The boss of the House of Representatives, however, demanded that they be prepared to return to Washington urgently if an agreement were to be reached in their absence. It is in fact very common for last-minute compromises to be made on this type of file.
The economic world showed its first signs of tremor. The rating agency Fitch issued a warning on Wednesday placing the AAA rating of the United States “under surveillance”. This unprecedented situation would have potentially catastrophic consequences for the American and global economy. For the first time, holders of US Treasury bonds, the king of global finance, could no longer recover their investment.
And the repercussions would go beyond the economic world. There would also be “national security consequences”, warned Thursday the American Chief of Staff, General Mark Milley. The “payment of troops”, “weapons systems, contracts, all of this would be disrupted”, he said, judging that this would harm the “readiness, capabilities and morale” of the army.