Biden and the Republicans meet a month after the US suspension of payments without an agreement in sight

The countdown for the US to enter technical bankruptcy continues, and the estimates of the US Treasury and Goldman Sachs is that the ‘D-day’ in which the Joe Biden government runs out of money to pay its debts and is forced to declare suspension of payments it will arrive in a month. The key to get out of this crisis is held by the President of Congress, Republican Kevin McCarthy, who is the one who must authorize the Government to issue bonds again. And this Tuesday, after several months without relations, both parties are going to meet to speak at the White House.

At the moment, the positions are very far apart. Biden demands that Congress allow the issuance of new bonds without further ado, alleging that his only interest is to pay the debts that the State has already incurred due to the budgets approved by that same Congress, with Republican support, and recalling that they voted three times in favor of issuing more debt during the Government of Donald Trump without demanding anything in return or taking global financial stability “hostage”.

McCarthy, for his part, wants the democrats pass a long list of political goals, such as sharp cuts in public spending, a partial repeal of the climate change and green energy law approved by Biden last year and a new law to allow more fossil energy production. In exchange, it would allow more debt to be issued for just one year, forcing this entire process to be repeated next summer, in the middle of the 2024 presidential campaign.

The most likely solution, like the time a similar crisis occurred in 2011, would be an agreement that pleases and annoys both parties equally, but there is no draft on the table yet. And what there is is a threat that hangs over McCarthy: in exchange for his position as president of the Lower House, he gave in to the most radical wing of his party and allowed a single deputy to present a motion of censure against him, without any additional requirement. So if those deputies fear that their leader is ‘selling’ them out, they can threaten him with immediate removal, which reduces his room for maneuver in negotiations.

The alternative, if there is no agreement, would be take advantage of a clause of the Constitution, the 14th Amendment, which states that “The validity of the public debt of the United States authorized by law shall not be questioned.” Bob Hackett, a professor at Cornell University of Law, stated this morning that, in his opinion, if Biden decided to issue more public debt to cover the debts caused by the public spending established by the Budgets, the Supreme Court would hardly overturn that decision, because the alternative, to order the government to declare bankruptcy, would be an even greater violation of said constitutional precept.

Even so, that possibility remains a ‘limit solution’ that nobody wants to test if there is another way out. The problem is that the positions are still very far apart, and the term to reach an agreement is reduced to forced marches. Treasury Secretary Janet Yellen insists that she does not see “any scenario other than Congress authorizing the government to issue more bonds.” If there is no agreement and the US ends up declaring bankruptcy, analysts fear a ‘shock’ to the world economy that will subtract 0.7% of the planet’s GDP and shake the markets. And investors are taking it seriously: the risk of a US bankruptcy has been growing slowly but inexorably for months.