U.S. debt default crisis: Can Biden and the Republican Party reach a preliminary agreement to pass the congressional vote? – BBC News Chinese

The background to the negotiations is that the United States must borrow money to fund the government at a time when spending exceeds taxation. But Republicans have been seeking cuts in areas such as education and other social welfare programs in exchange for raising the $31.4 trillion (£25 trillion) national debt ceiling, a law that limits how much debt the US government can accumulate.

Top Republicans have said they won’t raise the national debt ceiling unless the government spends less in coming years, while Democrats have responded with proposals to raise certain taxes.

The exact details of the new agreement have not yet been officially announced. But according to the BBC’s understanding, the relevant non-defense spending will remain basically unchanged for two years. For example, the health insurance program “Medicaid” will not have a major budget increase or decrease. But it is unclear how the government program that provides food-buying assistance to citizens with low or no income will change.

At a brief press conference on Saturday (May 27) evening local time, McCarthy said he had two phone calls with Biden that day. “After weeks of negotiations, we have reached an agreement in principle. We still have a lot of work to do, but I believe this is an agreement in principle that has value for the American people,” he said.

The debt ceiling issue highlights a fundamental ideological divide between the two main political parties in the United States. Republicans are skeptical of government spending because, to them, the mounting national debt is proof that government is out of control.

McCarthy also said that it is planned to draft the bill on Sunday (28th) local time, and then vote in Congress on Wednesday. He said he would speak to Biden again later in the day. Biden said in a statement: “This agreement represents a compromise, which means that not everyone will get what they want. This is the responsibility of government governance.” Good news for the American people as it prevents what could have been a catastrophic default, avoiding a recession, crippling retirement accounts and the loss of millions of jobs.”

Facing the crisis, Biden and McCarthy held budget talks last week. If the U.S. Congress fails to reach an agreement on raising the so-called debt ceiling, the United States may default on the debt issue, triggering global financial chaos.

So how did America get into this situation?

The debt ceiling, also known as the debt limit, is a law that limits the total amount the U.S. government can borrow to cover its expenses. This includes paying for federal employees, the military, Social Security and Medicare, as well as interest on the national debt and tax refunds, among other things.

Every once in a while Congress votes to raise or suspend the debt ceiling to allow further borrowing.

The current cap is around $31.4 trillion. That limit was breached in January, but the U.S. Treasury took “extraordinary measures” to provide more cash to the government as it determined a response. Normally, Congress raises the debt limit as a routine procedure based on fiscal need. This time, however, the two major parties in Congress appear unable to agree on terms.

U.S. Treasury Secretary Janet Yellen warned that the U.S. will not be able to fund all its fiscal obligations by June 1 if it cannot borrow more money.

There has never been a debt default in the history of the United States, so we cannot fully predict what the consequences will be. What is certain, however, is that it will do significant damage to the economy. Because the U.S. government will no longer be able to pay the salaries of federal and military personnel, and the Social Security checks that millions of American retirees rely on will stop sending out. Companies and charities that rely on government funding will also be at risk.

Also, if the U.S. government stops paying interest on its debt, that would also put the country in default.

The U.S. was briefly in default in 1979, when the Treasury Department blamed it on an unexpected check-processing problem. Deliberate default would cause severe shocks to the financial system. More than $500 billion in U.S. debt is now traded in the market every day.

Moody’s Analytics predicts that, in the event of a default, U.S. stock prices would fall by nearly one-fifth and the economy would contract by more than 4% in a prolonged stalemate, resulting in the loss of more than 7 million jobs.

In the long run, if investors start to see US debt as risky, they will demand higher interest payments from the US. Because government borrowing affects prevailing interest rates, the effect spreads across the U.S. economy, making it more expensive for everyone to borrow to buy a home or a car.

Indeed, Americans remain divided on whether the government can prioritize interest payments to avoid defaulting on its debt. However, it is considered politically difficult for the government to prioritize commitments to holders of U.S. debt, including financial institutions, pension funds and foreign investors, while retirees and others are not being paid. Selling options that are acceptable to Americans.

In the absence of an agreement, Biden has been urged to invoke the 14th Amendment to bypass Congress. The amendment states: “The validity of the public debt of the United States of America … cannot be questioned.”

The provision was passed after the Civil War to ensure that slave states in the South paid war debts accumulated by northern states and ensured that the government did not have to pay reparations to slaveholders and others in the South.

Biden has previously said he is considering using that provision. But many commentators say using the provision to challenge debt-ceiling laws would almost certainly spark a legal battle. Moreover, this approach has limited utility in the current crisis.

Yellen has played down that possibility in previous remarks, saying any attempt to invoke the clause would trigger a constitutional crisis.

In April, Republicans proposed a deal to suspend the debt ceiling for $1.5 trillion. In exchange, they will keep spending at key U.S. agencies at the same level in the next fiscal year as they were in 2022, and will limit growth to 1% a year for the next 10 years, saving $4.8 trillion.

But the Republican proposal would repeal key spending priorities of the Biden administration, such as student loan forbearance and electric vehicle tax incentives. The White House said the Republican deal would force “middle- and working-class families to bear the burden of the wealthiest tax cuts.” They argue that the Republican deal has no chance of becoming law.

Many analysts expect a “short delay” to give Congress more time to negotiate a deal. In 2011, the last time the U.S. was considered at serious risk of default, negotiations dragged on until a compromise was announced hours before the deadline. The deal at the time included spending cuts of $900 billion over the next 10 years.

But even delays can have negative consequences. In 2011, a similar impasse led to a downgrade of the U.S. credit rating and a slump in the stock market, costing the public at least $1.3 billion in higher borrowing costs that year alone.

In fact, the crisis underscores a fundamental ideological divide between the two major political parties in the United States.

Republicans are skeptical of spending by Democratic administrations. To them, the mounting national debt is evidence that the government is out of control.

While the gambit of capping the debt ceiling is relatively new for Republicans, many Republicans see it as necessary. Because they believe that the current means of dealing with the US national debt will eventually lead to the destruction of the US economy and society.

Democrats generally believe that the government’s policy of increasing debt is a positive means, a policy that improves the lives of Americans and corrects historical mistakes. They believe that raising the debt ceiling when necessary is necessary to maintain government operations.

In the view of Democrats, the national debt is simply a means to finance the legislative programs that have been discussed and approved.

Debating the debt ceiling has dwindled under Trump’s presidency, with Congress raising it three times without a major debate. But after Biden took office, this issue has aroused renewed attention.