What happens if the US debt ceiling is not raised? – NBC Chicago

President Joe Biden and House Speaker Kevin McCarthy will meet face to face on Monday after a weekend of recurring negotiations over raising the national debt ceiling and just days before the government can reach a “hard deadline” and running out of money to pay bills.

The two sides are working to reach a budget compromise before June 1, when Treasury Secretary Janet Yellen has said the country could default.

McCarthy and Republicans insist on spending cuts in exchange for raising the debt ceiling. Biden came to the negotiating table after hesitating for months, but said GOP lawmakers will have to give up their “extreme positions.”

On Sunday evening, negotiators met again and appeared to be closing in on a cap for the 2024 budget year that could resolve the impasse. After speaking with Biden by phone as the president returned home from a trip to Asia, McCarthy sounded somewhat optimistic. But he warned that “there is no agreement on anything”.

A look at the negotiations and why they are happening:

WHAT IS THE FIGHT AGAINST THE DEBT CEILING?

Once a routine act by Congress, the vote to raise the debt ceiling allows the Treasury Department to continue borrowing money to pay the nation’s already incurred bills.

More recently, the vote has been used as a political lever, an unavoidable piece of legislation that can be loaded with other priorities.

House Republicans, newly empowered in the majority of this Congress, refuse to raise the debt ceiling unless Biden and Democrats impose federal spending cuts and restrictions on future spending.

Republicans say the nation’s debt, now at $31 trillion, is unsustainable. They also want to attach other priorities, including tougher work requirements to recipients of government cash assistance, food stamps and the Medicaid health care program. Many Democrats oppose these demands.

Biden had insisted on approving the debt ceiling with no strings attached, saying the United States was still paying its bills and default was non-negotiable.

But facing a deadline as early as June 1, when the Treasury announces it will run out of money, Biden has launched negotiations with Republicans.

WHERE ARE THE NEGOTIATIONS STATE?

There are positive signs, although there have been difficult times in the talks.

Start-stop negotiations were back on track on Sunday evening, and all parties appear to be racing toward a deal. Negotiators left the Capitol after 8 p.m. Sunday and said they would continue to work.

McCarthy said after his call with Biden that “I think we can work out some of these issues if he understands what we’re looking at.”

The speaker added: “We need to spend less money than we spent last year.”

Biden, for his part, said at a press conference in Japan before leaving: “I think we can get to a deal.”

But reaching an agreement is only part of the challenge. Any deal will also need to pass the House and Senate with significant bipartisan support. Many expect buy-in from the White House and GOP leaders to be enough to get him over the finish line.

President Biden and Chairman Kevin McCarthy will meet face to face on Monday to try to figure out a way to keep the country from defaulting on its bills. NBC Brie Jackson reports.

WHAT ARE THE DEMANDS OF DEMOCRATS AND REPUBLICANS?

Republicans want to bring spending back to 2022 levels and cap future spending for the next decade.

Democrats are not prepared to go that far to cut federal spending. The White House has instead proposed keeping spending at its current 2023 level.

There are also policy priorities under consideration, including measures that could help accelerate the construction and development of energy projects that Republicans and some Democrats want.

Democrats have vigorously opposed a Republican push to impose tougher work requirements on people who receive government assistance in the form of food stamps, Medicaid health care and cash assistance programs.

Biden, however, has kept the door open for a discussion of job requirements.

WHAT HAPPENS IF THE DEBT CEILING IS NOT RAISED?

A government default would be unprecedented and devastating to the national economy. Yellen and economic experts said it could be “catastrophic”.

There isn’t really a plan for what would happen. But that would have far-reaching effects.

Yellen said it would destroy jobs and businesses and leave millions of families who rely on federal government payments “likely unpaid,” including Social Security recipients, veterans and military families.

More than 8 million people could lose their jobs, government officials estimate. The economy could plunge into a recession.

“A default could cause widespread suffering as Americans lose the income they need to live,” she said. Disruptions to federal government operations would impact “air traffic control and law enforcement, border security and national defense, and food security.”

And the US economy would hardly sink on its own. The repercussions of a very first default on the federal debt would reverberate quickly around the world. Orders from Chinese factories that sell electronics to the United States could dry up. Swiss investors who hold US Treasuries would suffer losses. Sri Lankan businesses could no longer use the dollar as an alternative to their own dodgy currency.

Mark Zandi, chief economist at Moody’s Analytics, says that even if the debt ceiling weren’t breached for at most a week, the US economy would weaken so much, so fast, that it would wipe out about 1.5 million jobs.

And if a government default were to last much longer – into the summer – the consequences would be far more dire, Zandi and his colleagues found in their analysis: US economic growth would plummet, 7.8 million American jobs would disappear, borrowing rates would jump. , the unemployment rate would rise from the current 3.4% to 8% and a fall in stock markets would wipe out $10 trillion in household wealth.

President Biden delivered remarks on Wednesday on negotiations to prevent the government’s first-ever default.

DO DEMOCRATS HAVE A BACKUP PLAN TO FORCE THE DEBT CEILING INCREASE?

Some Democrats have offered to raise the debt ceiling themselves, without help from Republicans.

Progressives have urged Biden to invoke a clause in the Constitution’s 14th Amendment that says the validity of public debt in the United States “shall not be questioned.” The default, the argument goes, is therefore unconstitutional.

Proponents of unilateral action say Biden already has the power to effectively cancel the debt limit if Congress does not raise it, so the validity of the country’s debt is not in question. The president said on Sunday it was a “question which I think is unresolved” about whether he could act alone, adding that he hoped to try to bring the judiciary to weigh in on the concept for the future.

In Congress, meanwhile, Democratic House Leader Hakeem Jeffries initiated a process that would “offload” the issue to the House floor and force a vote on raising the debt ceiling.

It’s a cumbersome legislative procedure, but Jeffries urged House Democrats to sign the measure in hopes of mustering the majority needed to trigger a vote.

The challenge for Democrats is that they only have 213 members on their side – five short of the 218 needed for a majority.

Getting five Republicans to cross over and join the effort won’t be easy. The signing of a minority “discharge” petition is seen as a major affront to the party leadership, especially on an issue as important as the debt ceiling. Few, if any, Republicans can be prepared to suffer the consequences.