Investors Rattled by Standoff, Search for Compromise
The standoff has unsettled investors, sending the cost of insuring exposure to U.S. government debt to record highs. As Wall Street grows more concerned about the risks of an unprecedented default, some areas of potential compromise emerged after a Tuesday White House meeting.
Deep Disagreements Over Spending Cuts and Tax Increases
Deep disagreements persist over competing pressures for spending cuts versus tax increases. Biden signaled an openness to Republicans' demand to claw back some unused money for COVID-19 relief, while the White House reiterated its support for legislation speeding government permitting of energy projects.
Key Congressional Leaders to Meet Over Budget Dispute
Aides for key congressional leaders, including Biden, McCarthy, Schumer, McConnell, and Jeffries, were expected to meet on Wednesday afternoon and Thursday before a Friday meeting Biden called with the four congressional leaders. Biden emphasized that default is not an option.
Standoff Over Clean Debt Ceiling Increase Continues
Democrats have called for a "clean" increase to the debt ceiling without conditions, while House and Senate Republicans refuse to authorize any additional borrowing without an agreement to cut spending. McCarthy estimated that the two sides had as little as two weeks to reach a deal.
G-7 Meeting Adds Urgency to Debt Ceiling Negotiations
With Biden scheduled to leave for the G-7 meeting on May 18, the urgency for a framework agreement increases. Rohit Kumar, a former Senate aide, views Biden's trip as a deadline for an agreement that could serve as the basis for legislation.
Challenges in Advancing Legislation Amid Time Constraints
Even with significant progress, the House and Senate each have procedures for advancing legislation that opponents of any deal could use to delay passage. The last time the U.S. came this close to default was in 2011, with a Democratic president and Senate and a Republican-led House.
Report Highlights Flaws in U.S. Electoral System
A new report suggests that the current standoff over the debt limit is due to a U.S. electoral system that rewards congressional candidates more for waging battles than working toward legislative compromises. The nonpartisan Fix, Our House group, calls for electoral reforms to create more competitive races.