WASHINGTON, Jan 19 (Reuters) – The U.S. government reached its $31.4 trillion borrowing limit on Thursday, amid a dispute between the Republican-controlled House of Representatives and President Joe Biden’s Democrats over raising the ceiling, which could lead to a financial crisis in the financial crisis. a few months.
Treasury Secretary Janet Yellen told congressional leaders, including House Speaker Kevin McCarthy, that her department has begun implementing measures to control funds that could prevent a bailout until June 5.
Republicans, who have a majority in the House that they just won, want to use the time until the Treasury’s emergency moves are exhausted to cut spending from Biden and the Democratic-led Senate.
Industry leaders and one credit watchdog warned that a long-term crisis could rattle markets and destabilize an already struggling global economy.
Yellen warned that the June date would be “highly uncertain” because of the difficulties in predicting the government’s wages and income for the next several months.
“I urge Congress to take immediate action to protect the integrity of the United States,” Yellen told congressional leaders in a letter Thursday.
But there was no sign that Biden’s Republicans or Democrats were ready to budge.
Republicans are trying to use their slim House majority and rising debt to push for cuts to government programs, arguing that the Treasury can avoid default during the shutdown by prioritizing debt repayment. This idea has been explored in previous positions, but economists question its feasibility.
The White House rejects the idea.
“There will be no negotiations on the debt ceiling,” White House deputy press secretary Olivia Dalton reiterated Thursday aboard Air Force One. “Congress must deal with this without conditions as it did three times under former Republican President Donald Trump,” he said.
The prospect of brinkmanship has raised concerns in Washington and Wall Street about a deadly debt war this year that could be as disruptive as the long war of 2011, which led to the US debt crisis and years of pressure. reduce housing and military spending.
Moody’s Investors Service on Thursday said it hoped Congress would reach a deal to avert a default, but negotiations would reach a stalemate, leaving the market unmoved.
“We’re not going to default. We have the ability to operate and pay our interest. But at the same time we don’t have to increase the debt ceiling,” Representative Chip Roy, the executive director, told Reuters.
Roy dismissed concerns of market volatility and risks of a recession.
“That’s what they always say. It’s like clockwork,” Roy said in an interview. “We are already dealing with a recession. The question is what will it look like – unless a combination of monetary policy and fiscal policy can save us from our spending folly.”
But industry leaders lamented the misunderstanding.
“I am concerned and I will take every opportunity I can, and we can be strong, to join the people in Washington to make sure they understand that we do not think this is the right thing. Play with them,” Goldman Sachs Group Inc (GS.N) David Solomon said in an interview on Thursday.
Senate Republican leader Mitch McConnell predicted that the debt would be removed sometime in the first half of 2023 under the terms that Congress and the White House negotiated.
“It’s always a debate,” McConnell told reporters at the University of Louisville.
“The important thing to remember is that America does not have to pay off its debt. It never has, and it never will,” McConnell said, adding, “The very important business of raising money for the government has been a very controversial issue in my party.”
Congress passed the credit limit, the largest federal debt, in 1939, intending to limit its growth. This measure did not have any effect, as, in practice, Congress carried out the annual budget process – by choosing the spending money – in contrast to the debt ceiling – in particular, agreeing to pay the money that was previously approved.
The Republican plan seeks to balance the federal budget over 10 years based on spending at the 2022 level.
Meanwhile, House Republicans are vowing to reject a federal spending bill from Senate Majority Leader Chuck Schumer, similar to the $1.66 trillion bipartisan omnibus package that Congress passed late last year.
Schumer, the top Democrat in the Senate, said in a statement: “Political disagreements over the debt limit would do serious damage to the local economy, American families and would not be a financial crisis in the hands of Republicans.”
“We are hopeful that Democrats will come to the table and negotiate in good faith,” said Republican Representative Ben Cline, who chairs the budget and spending committee. “There is a lot of room for discussion in terms of how we can deal with the economic crisis that we are facing.”
Reporting by David Morgan and David Lawder, with additional reporting by Lannah Nguyen, Jeff Mason and Doina Chiacu; Editing by Scott Malone, Bradley Perrett and Chizu Nomiyama
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