US debt ceiling deal nears default 2023

News sources suggest US President Joe Biden and senior congressional Republican Kevin McCarthy are nearing an agreement to lift the $31.4 trillion debt ceiling for two years while curbing expenditure on most programs.

A default may shake global financial markets and cause a US recession. DBRS Morningstar, Fitch, Moody’s, and Scope Ratings all warned of a US downgrade on Thursday.

The debt ceiling “brinkmanship” might prompt Fitch to drop the US’s triple A rating. After a 2011 debt-ceiling crisis, S&P Global downgraded US creditworthiness.

The months-long deadlock has frightened Wall Street, lowering US equities and raising borrowing costs. Deputy Treasury Secretary Wally Adeyemo said debt limit fears have raised the government’s interest payments by $80m.

An anonymous official told Reuters that the prospective agreement would boost military and veteran discretionary expenditure while maintaining non-defence discretionary spending at present levels.

“Time’s up for all these games around here,” Democratic Representative Don Davis, a US Air Force veteran, said at a news conference.

Reuters said that Republican Study Committee Chairman Kevin Hern expected a resolution by Friday afternoon.

The insider said the White House may scale back its proposal to finance more IRS inspectors and target rich Americans.

A second US source said IRS financing is an open issue, but the important goal is ensuring the agency fulfills the president’s policies, even if budget is slashed or shifted.

A source involved with the discussions said the final pact would set the government’s discretionary spending on housing and education, but not per category. According to another source, the two sides are $70bn apart on a $1 trillion amount.

Not easy.

The White House says Thursday’s meeting was virtual. Biden said they disagreed on where to reduce.

he told reporters.

House Speaker McCarthy stated the two parties had not agreed. We anticipated difficulty.

Congress has uncertain time to act. On Thursday, the Treasury Department announced it will sell $119bn of debt due on June 1, signaling to some market watchers that the deadline was not firm.

Gennadiy Goldberg, senior rates strategist at TD Securities in New York, said, “They have suggested in the past that they would not announce actions that they did not believe they could settle. “That’s good.”

Any deal must pass the Republican-controlled House and Democratic-controlled Senate. That might be difficult as some right-wing Republicans and many liberal Democrats were angered by compromise.

“I don’t think everyone will be happy at the end. McCarthy answered, “That’s not the system.”

Democratic Representative Mark Takano said Biden has opposed Republican efforts to tighten labor requirements for anti-poverty programs and relax oil and gas drilling laws.

Democrats warned that Republicans’ discussions will slash veterans’ healthcare, food, and housing help.

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