Republicans face off with Democrats as U.S. hits debt ceiling

WASHINGTON, Jan 19 (Reuters) – The U.S. government hit a $31.4 trillion borrowing cap on Thursday, with a standoff between the Republican-controlled House of Representatives and President Joe Biden’s Democrats likely to end within months. Financial crisis.

Treasury Secretary Janet Yellen notified congressional leaders, including House Speaker Kevin McCarthy, that her department has begun using unconventional cash management measures that could avoid a default by June 5.

Republicans, who have won a new majority in the House of Representatives, intend to use the period until the Treasury Department’s emergency drills are exhausted to pressure Biden and the Democratic-led Senate to cut spending.

Yellen warned that there was “considerable uncertainty” about the June date due to the challenges of forecasting payments and government revenue in the coming months.

“I respectfully urge Congress to act swiftly to protect the full confidence and integrity of America,” Yellen told congressional leaders in a letter Thursday.

But there is no sign that Republicans or Biden’s Democrats are willing to back down.

Republicans are pushing a “debt prioritization” plan that would avoid default by urging the Treasury Department to prioritize debt payments, and possibly other priorities such as Social Security and medical insurance. Republicans hope to complete the legislation by the end of March.

White House National Economic Council Director Brian Dees on Thursday highlighted the risks posed by uncertainty over whether the U.S. will pay its debts to its economy and its global standing.

“It’s not that complicated. It’s not about new initiatives or new opportunities. It’s about fulfilling the obligations this country has already undertaken,” Diess said in an interview with CNN.

‘Each’

The prospect of brinkmanship has raised concerns in Washington and Wall Street over this year’s bitter debate over the debt ceiling, which has been at least as damaging as the protracted battle in 2011 that prompted a downgrade of the U.S. credit rating and years of forced cuts. Domestic and military spending.

“We will not default on our debt. We have the ability to manage debt service and interest payments. But we also should not blindly raise the debt ceiling,” Chip Roy, a leading conservative representative, told Reuters.

Roy dismissed concerns about market volatility and the risk of a recession.

“They say that every time. It’s like clockwork,” Roy said in an interview. “We’re already headed for a recession. The question is what it will look like – unless a combination of monetary and fiscal policy saves us from the folly of spending so much money.”

Congress passed the Omnibus Debt Ceiling, the legal limit on the amount of debt the government could issue, in 1939 to limit its growth. The measure has had no such effect because, in practice, Congress separates the annual budget process — deciding how much to spend — from the debt ceiling — essentially agreeing to pay the cost of previously approved spending.

Negotiations on debt prioritization and spending are not expected to be in full swing until lawmakers return to Washington next week.

The Republican plan calls for balancing the federal budget over 10 years, capping discretionary spending at 2022 levels and using House oversight to identify federal programs that could be eliminated or scaled back, which are expected to be approved by the House later this year. Presented by the Appropriations Committee. year.

Meanwhile, House Republicans vowed to reject a sweeping government funding bill proposed by Senate Majority Leader Chuck Schumer, similar to the $1.66 trillion bipartisan comprehensive package Congress passed late last year.

White House officials also noted that Republicans in Congress have supported raising the debt ceiling several times during Republican Donald Trump’s presidency.

“We’re optimistic that Democrats will come to the table and negotiate in good faith,” said Rep. Ben Klein, a Republican who leads a conservative budget and spending task force. “There’s a lot of room for negotiation when it comes to what can be done to address the fiscal crisis we’re in.”

Reporting by David Morgan and David Lawder, Additional reporting by Jeff Mason and Doina Chiacu; Editing by Scott Malone, Bradley Perrett and Chizu Nomiyama

Our Standards: The Thomson Reuters Trust Principles.

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