Joe Biden faces one of the most treacherous political moments of his presidency, as he attempts to defuse a escalating debt crisis in tense financial talks with Congress that are due to begin this week.
The US President is set to meet with congressional leaders from both US political parties Tuesday. A deadline for new legislation that will lift the country’s borrowing limit of $31.4tn by early June has loomed. Otherwise, there could be a default in US debt payments and other government obligations.
Analysts warn that despite public opinion polls showing a small majority of Americans supporting Biden in the standoff with Republican House Speaker Kevin McCarthy, his political edge remains fragile. He continues to have low approval ratings – particularly when it comes to the economy – even after launching his reelection campaign for 2024 last month.
A possible default or even a close call with default could cause a shock to the economy.
“The longer this goes on, the more likely it is that you will start to talk about disrupting markets. . . People tend to blame President more than Congress”, said Doug Heye a Republican Strategist.
Biden has been saying for months that he does not want to negotiate the debt ceiling. He called on Republicans in the past to do as they did under Donald Trump, then president of the United States. They should raise borrowing limits without conditions.
Republicans in Congress have tried to link raising the debt ceiling to spending cuts, which Democrats say amounts to “holding the US economy hostage”.
Last month, Biden’s hand weakened when Republicans approved a House Bill that would raise the debt limit by $1.5tn until March next year or until the first of those dates.
Ben Koltun, a Washington-based Beacon Policy Advisors analyst, said: “Democrats may reject the notion that the debt limit should be negotiated. But in terms of optics McCarthy appears reasonable, and it’s not clear to voters which side will be held accountable for a default.”
The Republican bill reduces spending on government programmes – some of which are popular – and also reverts many Biden administration policy, such as tax credits for clean energy.
The bill is doomed to failure in the Democrat controlled Senate. Even so, some prominent business groups as well as centrist members from Biden’s party have urged the president to use this legislation as a basis for discussions with McCarthy.
Any deal seems far off. McCarthy and Biden are both experienced in relationship-based politics and “always trying to prove the naysayers incorrect”. Koltun stated that if there were a deal on the debt limit which would not cause blowback to their respective bases, both Biden and McCarthy would take it.
Koltun continued, “But both parties were distrusted inherently by their respective base and took pains to win over the members to achieve power.” This has led to a greater divide between them on issues of policy and procedure than if each party had negotiated a deal independently.
Biden’s willingness and refusal to impose conditions on the debt ceiling, as well as his willingness to negotiate budgetary issues are still supported by most Democrats. Many Democrats are suspicious of Republicans’ motives, believing they will simply look for ways to harm the economy and then blame Biden.
Bill Foster, a Democrat from Illinois on the House Financial Services Committee said that “the White House was right to separate these discussions.” It’s possible that we will have to wait for a negative reaction in the market before we can see a way out.
A Washington Post/ABC survey released last week revealed that Americans are sharply divided on who is to blame for a government default on its debt. 39 percent of respondents said they would blame Republicans in Congress, while 36 percent blamed Biden. Sixteen percent said they would blame each side equally.
In the same survey, more than half of Americans — 58 percent — agreed with Biden that debt ceilings and federal budgets should be treated separately. Support for the president’s stance has dropped 7 percentage points from February when the question was first asked. A separate Washington Post/ABC survey released on Sunday showed Trump ahead of Biden in an upcoming presidential rematch.
McCarthy has his own calculus to face. After allowing rule changes to make it easier for his own members to vote against him as part of an agreement that allowed his election this year, his political future remains uncertain. Rightwing members of the caucus have a large influence, and they can refuse any concessions made to Democrats.
“Sometimes, I think that they’ll just do a last minute deal like they always have.” “I think that there are more Marjorie Taylor Greenes in the Republican caucus than 10 years ago,” J Miles Coleman of the University of Virginia Center for Politics said, referring the Georgia right-wing congresswoman.
Biden, then the vice president, reached an agreement at the eleventh hour with House Republicans in 2011. The brinkmanship stoked the market and caused Standard & Poor to downgrade America’s triple-A credit rating.
Many in Washington are optimistic about a last-minute agreement, but others say that the polarised political environment and the complicated calculations of both parties set the stage for an economic showdown. Janet Yellen warned that there are no other options to raise the debt ceiling on Sunday.
Heye said that there is a sort of assumption here, which is that we won’t breach the debt ceiling because it has never happened before. “If there is anything we’ve learned in the last five, six or even ten years, it’s that assuming it won’t happen just because it was unprecedented is foolish.”