(Washington) A risk of bankruptcy… and parliamentary holidays: one week before a possible default in payment by the United States, the elected representatives of Congress returned to their constituencies on Thursday, for lack of an agreement with President Biden on the recovery of the debt ceiling.
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 well end up on 1er June in default of payment, that is to say unable to honor their financial commitments, whether salaries, pensions, or reimbursements to their creditors.
Budget cuts
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.
The American president had initially simply ruled out discussing under the threat of bankruptcy.
He finally made several proposals to his Republican opponent Kevin McCarthy, boss of the House of Representatives, to reduce the federal state bill, but that was not enough.
“Made from scratch”
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 reached 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 review”.
The US Treasury on Thursday denounced a “fabricated crisis”, castigating the refusal of conservatives in Congress to vote to raise the debt ceiling, an essential maneuver to avoid bankruptcy.
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.