Democrats and Republicans move closer to debt deal

Democrats and Republicans moved closer to an agreement ahead of the long weekend on Friday to raise the US debt ceiling and avoid a devastating default that could hit the world’s largest economy in a matter of days.

As the Treasury drew up a proposed deadline next Thursday for a government running out of money, there were glimmers of optimism in Washington that the two sides would finally come to a compromise.

According to unconfirmed U.S. media reports, this will include an agreement to cover $31 trillion – and growing – U.S. debt within two years, meaning the current drama won’t repeat itself until the 2024 presidential election.

Democrats will offer concessions to demands for sweeping caps on welfare spending and other domestic programs passed in the Republican “Limit, Maintain, Grow” Act in April but dismissed as “extreme” by Democratic-majority Senate leaders.

House Speaker Kevin McCarthy, the top Republican in Congress, told reporters negotiators “made progress” on Thursday, but added: “Nothing will be agreed until everything is agreed.”

“We have passed the bill. No one else in Washington has done it. It raises the debt limit, cuts our spending, returns wasteful money, and effectively removes the shackles from what is holding us back,” he added.

Pressure to reach some kind of deal and allow the government to borrow more money to meet existing obligations is mounting.

According to the Ministry of Finance, next Thursday the state treasury could dry up, leaving some domestic bills and accounts of international creditors unpaid.

More optimistic estimates give a little more than a couple of extra weeks before the cataclysm, which is likely to cause a sell-off in the stock market, huge job losses and a recession.

As the country celebrates Memorial Day on Monday, members of Congress are leaving Washington for a 10-day break. Even President Joe Biden – to the dismay of some in his own party – is heading to his Camp David hideout and his private home in Delaware.

However, Wally Adeyemo, Deputy Treasury Secretary, told CNN that both Biden and McCarthy were focused on avoiding disaster.

“The president has decided, the speaker has said it, and we have to do something before June,” Adeyemo said. “The President is keen to make sure we are negotiating in good faith with the Republicans to reach an agreement because the alternative is disastrous for all Americans.”

On Thursday, Biden also tried to calm the country, saying: “There will be no default.”

Raising the debt ceiling is an annual accounting maneuver that usually goes unnoticed. It simply allows the government to keep borrowing money to pay bills already incurred through the budget.

This year, the increasingly hardline Republican Party decided to turn the debt ceiling into leverage to force Biden to abandon the Democrats’ favorite spending priorities.

Republicans call it taking charge of the $31 trillion national debt. The White House accuses the opposition party that controls the House of Representatives of taking the economy hostage.

Democratic Minority Leader Hakim Jeffreys blasted Republicans from the floor of the House on Thursday, accusing them of risking “a dangerous default in the crisis they created.”

Economists have spent months raising the possibility of an economic catastrophe in the event of a government default, and senior military officials on Thursday added their gloomy outlook, warning that the crisis would have a “significant negative impact” on troops.

“Of course, this will affect readiness,” Mark Milley, chairman of the Joint Chiefs of Staff, told reporters.

McCarthy pointed to a CNN poll this week that found 60 percent supported a debt ceiling hike if it was accompanied by cuts, though 51 percent of respondents in a new Monmouth University poll said they’d like to see the two questions separated.

While lawmakers are on recess, McCarthy said they would receive 24 hours’ notice if they had to return to vote.