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US Faces Risk of Default in Early June Unless Debt Dispute is Settled, Warns Treasury Secretary Yellen
US Treasury Secretary Janet Yellen has warned that the country faces the risk of default in early June if the debt dispute is not resolved promptly. President Biden has invited Republican House Majority Leader McCarthy to a meeting in an attempt to negotiate a resolution.
According to Yellen, the US government may be unable to meet all of its obligations as early as 1 June if Congress does not increase or suspend the debt limit in the coming weeks. In a written letter to Republican House Majority Leader Kevin McCarthy and other senior politicians, Yellen stressed the need for Congress to act as soon as possible.
Debt ceiling already reached
The Republicans and Democrats have been locked in a dispute over government spending and the country’s debt burden for months. The US officially reached the debt ceiling of $31.38tn (around €28.6tn) in mid-January.
Since then, the government has been able to avoid default through a series of “extraordinary measures.” Defaulting on payments could have potentially devastating consequences for the US and the international financial system.
Republicans insist on spending cuts
For decades, both Republican and Democratic presidents have suspended or raised the US debt ceiling multiple times with bipartisan majorities. However, the Republicans now want to use their support for raising the ceiling as leverage to achieve spending cuts.
US President Joe Biden, on the other hand, insists that the debt ceiling increase must be unconditional, as the country’s debt is a legacy of previous governments’ decisions.
Biden invites McCarthy
The White House announced that Biden called McCarthy and invited him to a meeting on 9 May, which will be attended by other key representatives of the Democrats and Republicans in Congress.
Recently, the Republican-controlled House passed a bill that requires massive spending cuts in exchange for raising the debt ceiling. Among other things, subsidies and tax credits for renewable energy and a student debt relief plan pushed by President Biden would be eliminated. Such a bill is unlikely to be passed by the Senate, where the Democrats have a slight majority.