Biden and McCarthy agreed on a deal to solve the sovereign debt crisis, giving many concessions to the Democratic party.
After a couple of weeks of tense negotiations, both the US Republican and Democratic party came to an unsigned deal on the sovereign debt ceiling. According to Secretary of the Treasury Janet Yellen, the deadline for a final approval is in early June.
Yellen stated that the US long-term bonds will mature by then, and the treasury lacks sufficient liquidity for their repayment. Failing to meet this deadline would force the United States to declare default for the first time in its history.
An American default would send shock waves across the entire global economy. It would plunge the United States into years-long recession and the dollar would lose most of its purchasing power.
US debt currently sits at $31,4 trillion, roughly 20% larger than the nation’s GDP.
Every time the debt limit is approached, fierce negotiations between parties take place. This time was no different, with Republican House Speaker Kevin McCarthy proposing a bill to limit public spending.
That bill, however, would have buried any of president Biden’s welfare plans, including the student loan relief and medicare.
McCarthy also made a point of ending the sovereign debt issue once and for all, as many analysts consider it a dangerous time bomb.
How the negotiations ended in Biden’s favor
What’s peculiar about this debt ceiling negotiation was suspending the ceiling altogether for a set amount of time. In the deal agreed upon Sunday evening, Biden and McCarthy agreed to cease the role of the debt ceiling until 2025.
This agreement frees Biden of a heavy burden, with the assurance that debt will not be a problem for his 2024 campaign.
While the deal puts a cap on public spending, except a 3% increase in defense budget, it keeps Biden’s student relief plan clean energy measures. It avoids further tax hikes (as requested by Republicans) and ensures a return of unspent Covid funds.
Democrats put discussions on Medicaid off the table, insisting on leaving the healthcare plan untouched.
So, the debt ceiling discussion was a Democratic success in every aspect. Biden avoided further discussions until 2025 (a problem for either his last administration or a new president) and to stand ground on Democratic priorities.
What the deal failed to do was to address the debt crisis. While it reduces public spending for 2024, it has no systematic solution to lower debt.
A problem, again, for future presidents and future generations.
