It was a meeting held in style, but to no effect. U.S. President Joe Biden hosted House Speaker Kevin McCarthy and other congressional leaders in the Oval Office of the White House on Tuesday afternoon. The meeting was so high-level that the president joked to reporters at the beginning of the meeting, “we’re going to get started, solve all the world’s problems.” The meeting, however, did not yield any progress on unlocking the debt ceiling extension. “I didn’t see any movement,” McCarthy summarized. But expectations, in fact, were not very high.
The Speaker of the House of Representatives appeared before the media together with the leader of his party in the Senate, Mitch McConnell, also present at the meeting, in a defiant tone and complaining that Biden had not agreed to enter into negotiations on the debt ceiling until there was hardly any time left: “That’s no way to govern,” he said. The White House has “no plan B,” he added.
Treasury Secretary Janet Yellen warned last week that the X date when the U.S. could run out of money to meet its obligations could come as soon as June 1, although she left open the possibility of a longer time frame. The debt ceiling, $31.38 trillion, was reached in January and since then the government has been running on extraordinary measures that have left temporary breathing room. Moody’s agency and investors placed the X date in mid-August.
Biden and his spokesperson have insistently repeated that it is the responsibility of Congress to extend the debt limit and that it must do so without attaching conditions. Democrats consider that to be blackmail, a hostage-taking for which they are asking for a ransom, and stress that during Trump’s presidency Congress raised the debt ceiling three times without asking for cuts in return.
Hakeem Jeffries, the Democratic leader in the House of Representatives, another attendee, has been a bit more conciliatory and said that congressional leaders and their staffs were going to continue discussions on the annual federal budget starting this very Tuesday, at Biden’s urging. Democrats are open to some spending cuts as long as they are not tied to the threat of default. They want it to be part of the budget negotiation, but not part of the debt limit negotiation.
The House Republican majority has passed a bill that would allow the debt ceiling to be raised, but in exchange for cuts in numerous areas and for Biden to give up some of the major accomplishments of the first half of his term, including measures in the Inflation Reduction Act and partial debt forgiveness for college students.
The proposal has no future in the Democratic-controlled Senate, but it gives McCarthy a bargaining chip: “We both said default is not an option — but only one of us took action,” he contends. “I asked the president this simple question, Does he not believe there’s any place we could find savings,” McCarthy told reporters outside the White House.
The fourth congressional leader present at the meeting, Chuck Schumer, who leads Senate Democrats, has attacked McCarthy noting that he is putting America at great risk. “To use the risk of default, with all the dangers that has for the American people as a hostage and say it’s my way or no way, are mostly my way or no way, is dangerous,” Schumer said.
As proof that there was not the slightest hope of reaching an agreement, the President of the United States, Joe Biden, had already scheduled a public event for Wednesday to criticize the Republican position and the cuts it entails and to demand an unconditional raising of the debt ceiling.
There are theoretical alternatives that would allow finding a way out. One of them is to resort to the power to mint platinum coins of any value and launch the trillion dollar coin, deposit it in the Federal Reserve and obtain funds with it. There are also financial engineering possibilities: the Treasury could issue debt with a low face value but a very high coupon or interest or swap debt to obtain more resources without exceeding the authorized face value.
There has been speculation about another possibility that could lead to a constitutional conflict. The fourth section of the 14th Amendment to the Constitution states that “the validity of the public debt of the United States, authorized by law (…) shall not be questioned.” Using that rule to justify issuing new debt to pay off existing debt would be a highly controversial interpretation. McCarthy said those issues were not part of Tuesday’s discussion.
The possibility of a temporary suspension or extension of the debt ceiling to close the budget year that ends Sept. 30 and buy time for negotiation does not seem a realistic option at the moment either. Congressional leaders will meet again this Friday.
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