Despite high-level guarantees, time is running out to prevent default

Senator Mitch McConnell had a message for Americans increasingly concerned that the economy will collapse if the federal debt ceiling is not raised: just chill.

“Look, I think everyone needs to relax,” Mr. McConnell, the Kentucky Republican and minority leader with extensive experience in debt-limit confrontations, told reporters back home earlier this week. “Regardless of what is said daily about the talks, the president and the speaker will come to an agreement. It will eventually pass a bipartisan vote in both the House and Senate. The country will not fail.”

That might be a case of easier said than done. While Mr McConnell, President Biden and Chairman Kevin McCarthy have repeatedly assured Americans that there will be no default, that assurance is looking a bit shakier with just over a week to go before the US Treasury is expected to run out of cash to to pay his obligations.

Even if negotiators agree on a deal soon — an outcome that seemed within reach but still hadn’t materialized as talks continued on Friday — there’s still a lot to do, not least getting approval in the House and the Senate. That outcome is by no means certain, given the growing unrest – and outright opposition – on both the right and the left. At this point, no one can be absolutely sure that the United States will not tumble over the standard cliff, even though no one wants that to happen. Time is short.

“Nobody can guarantee that there won’t be a default, if only because the clock is ticking pretty fast here,” said G. William Hoagland, a longtime Republican budget guru on Capitol Hill who is now a senior vice president. at the Bipartisan Policy Center. “We’re on thin ice to a great extent.”

Negotiators were given some breathing space on Friday afternoon with the announcement by the finance minister that the standard deadline had been pushed back four days to June 5. urgency to close a deal.

“We’re on the cusp of executing this, and we need to get to some very tough terms in these closing hours,” said Rep. Patrick T. McHenry, North Carolina Republican and chief negotiator for Mr. McCarthy. “We’re going back to final, important matters, and it’s just not resolved.”

Since the impasse began, Mr. Biden and congressional leaders have tried to allay concerns about a default, essentially saying it was unthinkable because Congress has narrowly avoided a default before. After one of the high-level meetings at the White House, Senator Chuck Schumer, the New York Democrat and Majority Leader, applauded the fact that all four leaders had said default was off the table.

Part of their motivation for offering these constant reassurances was to bolster their own powers, calm the public, and prevent financial markets from collapsing as talks progressed.

But President Biden changed his tone slightly during his visit to Japan last weekend, saying for the first time that if Republicans insisted on pushing the issue to its limits, default might still be an option.

“I can’t guarantee they wouldn’t force bankruptcy by doing something outrageous,” Biden told reporters. “I can’t guarantee that.”

Representative Hakeem Jeffries, Democratic of New York and the minority leader, expressed a similar sentiment when asked this week if he could still be confident that the government would not default.

“Not with this group,” he said, referring to Republicans, some of whom he suspects wouldn’t mind the financial chaos caused by a bankruptcy if they thought it could help them politically in 2024.

Mr. McCarthy, the leader of the House and a Republican from California, has also repeatedly stated that there would be no default and stressed on Friday that he believed a positive result would be the result.

“I’m a total optimist,” he told reporters as negotiations dragged on with no clear breakthrough.

One way Mr. McCarthy has said that a default can be avoided is for the Senate to pass the measure and the president to sign the measure that Republicans passed in the House, raising the debt limit while implementing significant spending cuts and other initiatives of the Biden administration are being reversed. But that probably won’t happen, even if the Treasury runs out of money. Mr McCarthy has also ruled out a short-term emergency suspension of the debt ceiling.

Not even an agreement between House Republicans and Mr Biden would end the drama; in some ways it would be just the beginning.

House Republicans have a 72-hour rule for the time between when the legislation goes public and when it is due for a vote, a timeline that brings the confrontation ever closer to the Treasury’s early June deadline.

Plus, with hard-right elements of the Republican conference joining Progressive Democrats in voicing reservations about the deal taking shape, Mr. McCarthy and Mr. Jeffries may have to stick the needle to get the necessary votes from both sides. to get deal approval. .

Mr. McCarthy and his leadership team will need to accurately estimate how many Republicans have committed to vote for a final budget deal that includes a debt limit increase. They must then let Mr. Jeffries know how many votes the Democrats must produce to ensure that at least 218 lawmakers will support the package.

A misjudgment can spell disaster. When the country was in a severe financial crisis in September 2008, the House stunned the Bush administration by failing to pass the bank bailout program. In a chaotic turn of events on the House floor, the measure failed as many Republicans refused to support it despite presidential pleas and some Democrats also refused. The stock market tumbled in real time as the mood unfolded. Four days later, rattled House members returned and passed the bill with a few changes.

Some believe a similar scenario is now needed to push the debt limit plan through Congress — a failed vote and market downturn that underscores the economic fallout of a default and motivates lawmakers to act. Others prefer it not to come to that, given the potentially dire consequences of even a brief absence.

“I was optimistic that it wouldn’t happen, but the longer it takes, the more likely it seems to me,” said Mr. Hoagland, the budget expert. “The time is on to get this done, but I’m just praying that a default won’t happen.”

Luke Broadwater reporting contributed.