Republicans and Democrats grapple with setting short-term debt ceiling

Republicans and Democrats in Congress on Wednesday opened the door to a temporary solution to the U.S. debt ceiling crisis, saying they would consider an interim measure extending the country’s borrowing limit until December.

The potential breakthrough came after Mitch McConnell, the Senate’s top Republican, offered to support a short-term extension of the country’s debt limit as one of two options to resolve a deadlock that has spooked investors and American companies.

While some Capitol Hill Democrats immediately rejected the proposal, others expressed support for such a move as a way to avert impending economic and financial calamity and to refocus their efforts on adopting President Joe’s economic agenda. Biden.

“McConnell gave in. Now we are going to spend our time doing child care, health care and fighting climate change, ”Elizabeth Warren, Democratic Senator from Massachusetts, told reporters after meeting with members of her. left.

Jen Psaki, the White House press secretary, offered a cold response to McConnell’s proposal, but didn’t rule out backing it either. “No formal offer was made. A press release is not a formal offer, ”she said, adding,“ We ​​don’t need to kick the box. “

Chuck Schumer, the Senate’s top Democrat, did not immediately comment. A crucial procedural vote scheduled for Wednesday afternoon on a measure that would raise the debt ceiling and avert a default crisis in just over a week – which Republicans were expected to block – has been postponed.

Wednesday’s developments brought the first signs that members of Congress, and especially Republicans, were feeling pressure to avoid a potentially damaging and self-inflicted debt default. Lisa Murkowski, the Republican Senator from Alaska, said earlier in the day that she didn’t want America to “even come close” to a default, and that McConnell’s plan “was going to give us a way to come out of the woods “.

However, the details of any short-term deal have yet to be negotiated, and any deal would only postpone the threat to global financial markets and the US economy for a few months.

Earlier Wednesday, Biden asked for help from U.S. businesses in his attempt to convince Congress to increase the U.S. borrowing limit, by holding a virtual meeting with a group of CEOs and business leaders, including Jamie Dimon of JPMorgan Chase, Jane Fraser of Citigroup and Brian Moynihan of Bank of America, as well as Greg Hayes of Raytheon and Pat Gelsinger of Intel.

Fraser warned the United States was “playing with fire” in its fight against the debt limit, as she urged Congress and the administration to resolve the crisis as quickly as possible.

Dimon said the consequences of a possible default ranged from a “recession” to “utter catastrophe,” and would undermine the credibility of the United States in the world. “This is the time, I think, that we should show American competence, not American incompetence,” he said.

Adena Friedman, chief executive of Nasdaq, added that she “was already beginning to feel volatility” in financial markets. “Investors really don’t handle uncertainty very well,” she said.

Janet Yellen, US Secretary of the Treasury, also attended the meeting. She warned that the United States was at risk of running out of money to pay its bills after Oct. 18 without an increase.

T-bills that mature just past the Oct. 18 deadline have rallied dramatically following McConnell’s statement. The yield on the four-month bill that matures Oct. 19 fell 0.06 percentage point to 0.06 percent on Wednesday. Yields fall when the price of a bond increases.

The $ 4 billion market for short-term bills, on which the U.S. government relies heavily for funding, was largely unaffected by the stalemate until the end of last week. But on Friday, investors began to assess the risk of a debt ceiling deal not being negotiated on time, increasing the risk of default.

Biden attempted to portray Republican opponents of increasing the debt ceiling as playing ‘Russian roulette’ with the US economy and financial markets, sparking tensions between party lawmakers and their allies and donors around the world. Business.

Republican lawmakers insisted they would not sign to raise the debt limit, seeking to tie the effort to the Democrats’ ambitious spending plans, including the president’s proposals for an infrastructure bill. $ 1.2 billion and a social spending program of $ 3.5 billion.

Democrats argue that Republicans are hypocritical, given that they voted to raise or suspend the debt ceiling three times when Donald Trump was president, and that most of the current government borrowing is needed to pay the costs incurred under the previous administration.

Several lawmakers and former officials have warned that a default would have diplomatic implications for the U.S. government. Six former US Secretaries of Defense, including Jim Mattis, who served in the Trump administration, warned in an open letter to congressional leaders Wednesday that a default would have “catastrophic consequences” for the US military and ” leadership position of the country in the world “. ”.

The White House Council of Economic Advisers warned on Wednesday that without action, it could take “decades” for the United States to recover.

“Financial markets would lose confidence in the United States, the dollar would weaken and stocks would fall,” they wrote, adding: “The debt ceiling is not and should not be used as a balloon. political football. The consequences are too great.

Additional reporting by Eric Platt in New York

Marsh Notes

Rana Foroohar and Edward Luce discuss every Monday and Friday the main themes at the intersection of money and power in American politics. Subscribe to the newsletter here

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