Frustrations appear to be mounting as debt-limit negotiations drag on and key players swing between saying that their talks have been productive and indicating that they’re not even close to a deal while repeating the same demands.
Here’s what’s happening with just nine days to go until the government may not be able to pay its bills.
Debt Talks ‘Nowhere Near a Deal’ as Deadline Looms
A day after both President Joe Biden and House Speaker Kevin McCarthy described their Monday meeting as “productive,” the negotiations continued but huge differences remain unresolved.
McCarthy reportedly told Republicans at a closed-door meeting Tuesday morning that the negotiators are “nowhere near a deal.” The speaker urged his members to stick by him.
Both McCarthy and Republican Rep. Garret Graves, a chief GOP negotiator, insisted that the White House has not moved far enough on spending, rejecting a compromise proposal to freeze outlays at current levels.
“We are not putting anything on the floor that doesn’t spend less than we spent this year,” McCarthy said.
Asked about potential Republican concessions in the talks, McCarthy told CNN: “We’re going to raise the debt ceiling.”
Graves similarly insisted there would be no deal without spending cuts. “Until this administration is willing to recognize that they are having record spending, record deficits and record taxes, then we're not going to be able to come together,” he told reporters. “What's unreasonable is the White House position. It's irresponsible, and it literally is jeopardizing the generation after us, the children and grandchildren of today and this is just unsustainable."
Another GOP negotiator, House Financial Services Committee Chairman Patrick McHenry of North Carolina, said that the White House has shown a “lack of urgency” in the talks, a point that Biden spokesperson Karine Jean-Pierre strongly disputed.
The White House, meanwhile, said that “House Republicans have continued to demand draconian cuts to critical programs Americans rely on.” In a press release, the Office of Management and Budget warned again that the bill the GOP has put forth so far combined with Republicans’ commitment to preserve defense spending levels would likely require cuts of at least 30% to programs including education, research, public safety and public health.
Biden has called for raising revenue by increasing taxes on corporations and has proposed to save federal money by expanding the number of prescription drugs for which Medicare can negotiate pricing. McCarthy has rejected any tax hikes and told reporters that he thought Biden was trying to “disrupt the whole negotiations” by bringing up the Medicare proposal. “To me, that's a tactic to try to blow up negotiations," he said.
Treasury looks to buy more time: With the days until a potential default running short, the Treasury Department has reportedly asked federal agencies if it can delay upcoming payments as the Biden administration looks for ways to stave off a potential default, The Washington Post reports. The paper adds that Treasury officials sent a memo to agencies last week instructing them to take additional steps to inform Treasury about deposits and spending.
“With a big influx of quarterly tax payments expected to arrive in Treasury’s coffers on June 15, administration officials are looking for ways to hoard cash and eke out a few more days,” the Post explains. “If they can make it to June 15, the surge in revenue might give Treasury enough funding to push the X-date into July, when a fresh round of accounting measures would become available, perhaps allowing them to push the prospect of default even further into the future.”
One administration official acknowledged that they are “looking under the couch cushions,” adding that “it’s a very large couch.” Goldman Sachs economist Alec Phillips told the Post that Treasury might still be able to direct agencies to slow down their processes for submitting payments to buy more time. And Treasury might also be able to temporarily raise tens of billions of dollars by selling off bonds held in government trust funds and buying them back once the cash crunch ends.
At the same time, the Post notes that these options come with downsides and that administration officials aren’t counting on such fallback plans.
House pushes off appropriations markups: House Appropriations Committee Chair Kay Granger announced overnight that this week’s planned markups of four GOP spending bills for fiscal year 2024 were postponed in light of the ongoing debt limit negotiations.
R-E-L-A-X? “Debt limit talks between White House and House Rs are oscillating between productive meetings and near-breakdowns, which is actually not that unusual for a big negotiation,” Politico’s Burgess Everett tweeted. And Senate Minority Leader Mitch McConnell urged calm. “Everybody needs to relax,” the Kentucky Republican said. “The president and the speaker will reach an agreement. It will ultimately be passed on a bipartisan vote.”
The bottom line: “Nowhere near a deal” speaks for itself. The House is scheduled to be on recess from Thursday afternoon until June 5. McCarthy reportedly told his members they should go home to their districts if a deal isn’t reached by Memorial Day weekend.
Treasury Hits Danger Zone After Memorial Day: Analysis
There is an “elevated risk” that the U.S. Treasury will be unable to pay all of its bills during the first two weeks of June, according to an updated analysis released Tuesday by the Bipartisan Policy Center.
“BPC projects that if policymakers do not act on the debt limit, Treasury will most likely have insufficient cash to meet all its financial obligations sometime between early June and early August 2023, with an elevated risk between June 2 and June 13 (what we call the X Date),” the nonpartisan think tank said.
Shai Akabas, BPC’s director of economic policy, said the Treasury will be “skating on thin ice” in early June, with the ice growing thinner each day until June 15, when an influx of tax payments will provide a new cushion. “Of course, the problem with skating on thin ice is that sometimes you fall through,” Akabas said.
According to BPC, the Treasury will enter a danger zone in about a week. “Shortly after Memorial Day, the government will begin operating with dangerously low levels of reserves as the Treasury Department steadily draws down its remaining extraordinary measures and cash on hand,” the group said. “Even before Treasury has fully emptied its coffers, each day in early June carries an increasing chance of defaulting on our obligations and the associated economic turbulence.”
Republicans have their doubts: Although there is a growing consensus that the Treasury seriously risks running out of cash in the first two weeks of June, some Republicans say they doubt that June 1 is a “hard deadline” for raising or suspending the debt limit, as Yellen recently referred to it, and some even doubt there is any risk at all.
“I don't believe that the first of the month is a real deadline,” Rep. Matt Gaetz of Florida said Tuesday. “Like, I don't understand why we're not making Janet Yellen show her work.”
Gaetz argued that Yellen has been wrong before, and so may be wrong again. “Yellen couldn't see inflation coming like an oncoming train,” he said. “But she wanders out of some backroom in the White House with a Ouija board … telling us the 1st of the month is the number.”
Another conservative firebrand, Rep. Chip Roy of Texas, also cast doubt on the validity of Yellen’s warning. Asked about the June 1 deadline, Roy said, “Ask Janet Yellen. She’s the one with the magic Ouija board.”
Roy added that he doesn’t think the Treasury would run out of money in June. “The fact is, we’re gonna have cash in June,” he said. “The fact is, we’re not going to default on our debt. That’s just completely false. We’ve got the money to do it.”
Rep. Patrick McHenry said he, too, has doubts about the deadline.
“I want to trust the Treasury’s math, but they’re going to have to show their work,” McHenry told The Hill. “And if the White House team doesn’t have a sense of urgency, if the President doesn’t have a sense of urgency here, then that raises more questions — valid questions — about how they justify the date.”
Chart of the Day: What’s Safer Than Treasurys?
The Semafor chart below highlights one effect that the debt-ceiling standoff is already having on the market for U.S. Treasurys.
BlackRock bond chief Rick Rieder said Tuesday that he thinks the U.S. economy is “in much better shape than people give credit” for and that he sees a “very high probability” that the Biden administration will strike a deal with Republicans to raise the debt limit, according to CNBC. But Rieder, who oversees some $2.4 trillion, also told Semafor that the “impenetrable armor of the dollar” is at risk: “The great irony is that the U.S. Treasury might default but big, stable companies won’t.”
Number of the Day: $100,000
“House Republicans found time to finalize at least one deal on Tuesday,” The Washington Post’s Amy B Wang reports. At their closed-door meeting Tuesday, the House GOP auctioned off some cherry-flavored chapstick that supposedly had been used by House Speaker Kevin McCarthy. (It may or may not have been used.) The winner of the fundraising auction to benefit the National Republican Congressional Committee was Republican Rep. Marjorie Taylor Greene of Georgia, who bid $100,000 after McCarthy agreed to attend a fundraising dinner with the winning bidder, according to Politico.
Democrats used the news to blast the GOP. “MAGA Republicans are paying $100,000 for Speaker McCarthy’s chapstick while holding Social Security checks and retirement benefits hostage unless we cut food benefits for seniors, Medicaid funding, and childcare/preschool for low-income Americans,” Democratic Rep. Jennifer McClellan of Virginia tweeted.
- Wide Gulf Between Debt Limit Negotiators as Time Grows Short – Roll Call
- Key GOP Negotiators Say Talks Are Not Going Well – CNN
- As Funds Run Short, Treasury Asks Agencies if Payments Can Be Made Later – Washington Post
- 60% Say Debt Ceiling Increase Should Come With Spending Cuts – CNN
- Most Americans Favor Clean Debt Ceiling Increase: Poll – The Hill
- If the U.S. Defaults, Will It Miss Medicare Payments? What About Social Security? See What’s at Risk – Washington Post
- US Default Might Result in More Treasury Purchases, New Report Says – CNN
- Appropriators Face Close Votes on Spending Bills in Committee – Roll Call
- Republicans Train Their Sights on the IRS Commissioner – Politico
- Why Republicans Want to Repeal Biden’s Student Debt Relief Now – Politico
Views and Analysis
- Here Are President Biden’s Debt Ceiling Options, Ranked – Heather Long, Washington Post
- Biden Has No Good Options in Debt-Ceiling Fight – Andrew Duehren, Wall Street Journal
- GOP Extortion Has Backed Biden Into a Corner. He Still Has a Way Out – Paul Waldman and Greg Sargent, Washington Post
- The 14th Amendment Won’t Solve the Debt Limit Crisis. Here’s What Might – Washington Post Editorial Board
- Why Markets Will Likely Slide if the Debt Ceiling Isn’t Resolved Soon – Elisabeth Buchwald, CNN
- The Debt Ceiling Is an Awkward Place to Talk About Spending – Zachary B. Wolf, CNN
- Kevin McCarthy May Have Already Won the Debt-Limit Fight – Ed Kilgore, New York
- The Debt Limit Situation – Matt Bruenig, People’s Policy Project
- Caring for Seniors Is Mandatory. Investing in Kids Is Discretionary – Alyssa Rosenberg, Washington Post
- Republican Debt Ceiling Lies – Ryan Cooper, American Prospect
- Inflation Has Peaked—Get Ready for Deflation – Donald L. Luskin, Wall Street Journal
- Why Inflation Erupted: Two Top Economists Have the Answer – Greg Ip, Wall Street Journal
- GOP White House Race Will Test Anti-Vaccine Politics – Olivier Knox, Washington Post
- Quackonomics – Maureen Tkacik, American Prospect