For this reason, after the split in recent days between Republican negotiators and the White House, the president took the matter back in hand by having a telephone discussion with Republican leader in the House Kevin McCarthy from Air Force One on a return flight from Japan, and met him overnight in Washington. This time the positions of the two fronts are so distant and the two negotiators are so conditioned by the radical wings of the two parties that they make a really tough deal. They can also find a compromise, but both risk being disavowed by significant parts of their political forces, with Congress that fails to approve the increase in the public debt ceiling (currently set at $31.5 trillion) before the Treasury runs out of available funds and is forced to declare default as it is no longer able to meet its commitments. Janet Yellen, head of the Treasury, guarantees that she will be able to keep the situation under control only until June 1st. From that moment on, anything could happen, even if the real insolvency could occur a few days later, around the 10th or, at the latest, the 15th of June.
It would be an economic catastrophe and not just for the US: for Moody’s Analytics a default would cause a recession with unemployment which would rise from the current 3.5 to 8 percent because 7 million Americans would lose their jobs while the Stock Exchange would lose a fifth of its value.
Faced with such a cataclysm – but even half would be enough – the Americans would condemn both the White House and the Republican opposition without appeal, without making too many distinctions about responsibilities. Biden and McCarthy know it: they both have an interest in finding a compromiseor. The president implicitly admits that he has been bluffing for months claiming that there was nothing to negotiate because Congress must allow the government to fulfill its commitments with laws passed by the same parliament: now, however, it is negotiating some spending cuts, even if it cannot accept drastic interventions on social spending and environmental investments.
A few days ago the agreement seemed close. Then McCarthy, who if he concedes too much risks losing the votes of the Trumpian right and even being disheartened as speaker of the House, hardened his position: he wants 2024 spending not to exceed this year’s and that some social benefits (food stamps for food support for the poor, assistance to needy families and Medicaid, public health for destitute adults without children) are paid only for active job searches.
At this point, Biden has also stiffened: negotiate cuts and he has given up on talking about a tax hike for the super rich (a measure that was also at the center of his economic program), but if he gives up on welfare and the environment, he risks breaking with the left of Bernie Sanders and Alexandria Ocasio-Cortez. The liberal wing argues that Biden should stop negotiating and bypass the Republican veto appealing to the Fourteenth Amendment of the Constitution according to which the validity of the US debt can never be questioned.
Biden does not intend to go down this path except in a case of extreme emergency: he claims to having the powers but not having the time to resolve a series of legal problems and cannot throw the markets into uncertainty. It is the “nuclear” option that is keeping the negotiating table in progress.
But the feeling is that, after a “recreation” that lasted 15 years, made up of zeroing the cost of money and also of deficit spending to counter the effects of the Great Recession of 2008, then the economic consequences of the pandemic, finally those of the energy crisis and the war in Ukraine, the issue of public debt has once again become central throughout the world. And especially in the United States where the debt has increased from 10 thousand billion dollars in 2008 to almost 32 thousand today with an incidence on GDP that has doubled: from 60 to 120 per cent