Joe Biden Says Debt Deal ‘Very Close’ As Default Deadline Extended To June 5

US President Joe Biden has said he is hopeful about a resolution over the debt ceiling as the deadline for the potentially catastrophic default was extended to June 5. 

This comes as the deadline for the potentially catastrophic debt default was extended to June 5. 

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US President Joe Biden on Friday said that he is "hopeful" for a deal over the debt ceiling and that they are "very close" to a resolution over the issue. This development comes as the deadline for the potentially catastrophic default was extended to June 5. The US debt ceiling, or a limit, sets the maximum amount of outstanding federal debt the US government can incur. On Friday, Joe Biden told reporters, as per AFP, "It's very close and I'm optimistic. I'm hopeful we'll know by tonight whether we're going to be able to have a deal." 

The news agency said that this development is the most promising sign that the political turmoil in the US could come to an end, enabling the government to borrow funds and avert the potentially disastrous consequences of a default.

Such a default would likely result in a recession, significant job losses, and an economic downturn, the report added. 

Earlier on Thursday, US Treasury Secretary Janet Yellen told the Congress that if lawmakers do not come to a resolution for the federal debt ceiling the country may default on its debt obligations by June 5, four days later than the earlier projection, the news agency noted. 

In a letter to House Speaker Kevin McCarthy, Yellen wrote, “We now estimate that the Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5.”

"Waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States," she said. 

What Are The Sticking Issues?

Raising this limit is an annual accounting maneuver that usually passes with relatively little notice most of the time, the report said. however, with a majority in Congress, this year, the Republican Party is using it as leverage to push for a rollback of Democratic spending priorities, turning it into a contentious issue.

According to a report by the news agency AP, the main obstacle in negotiations is the GOP's push to increase work requirements for recipients of federal aid programs, including food stamps, which Democrats strongly oppose.

The report said that the White House is firmly against the GOP proposals, with spokesman Andrew Bates condemning them as "cruel and senseless." Louisiana Rep. Garret Graves, a negotiator for House Speaker Kevin McCarthy, made it clear that Republicans would not back down on the issue.

Negotiations hit a deadlock on Friday over work requirements for Medicaid, food stamps, and other aid programs, the report said.  President Biden opposed the work requirements for Medicaid but initially showed openness to potential changes for food stamps (SNAP).

The Republican proposal aims to save $11 billion over 10 years by raising the maximum age for work requirements and reducing exemptions granted by states, the report said. Adding that by Friday, Biden's position on SNAP work requirements had become firmer, with the White House criticising House Republicans for risking the economy by trying to take food away from hungry Americans. 

Any agreement would require compromise and support from both Democrats and Republicans in Congress. Failing to raise the borrowing limit, currently at $31 trillion, would have serious consequences for the US and global economy.

Debt ceiling negotiations also include a framework for spending cuts in 2024 and a 1 per cent cap on spending growth in 2025, which is taking shape as the talks continue. However, several provisions are still unresolved. GOP lawmakers are also anticipated to reclaim approximately $30 billion in unspent COVID-19 funds now that the pandemic emergency has ended.

According to unconfirmed US media reports, the deal taking shape would include an agreement to extend the government's borrowing authority for two years, meaning no repeat of the current drama before the 2024 presidential election, said a report by AFP. 

According to the AP report, US Congress Republicans have left Washington for the Memorial Day holiday, increasing the pressure on negotiations. The exact date of lawmakers' return remains uncertain, though they tentatively plan to reconvene on Tuesday.

Despite weeks of negotiations, a deal has not been reached between Republicans and the White House.

The Biden administration has been resistant to using the debt limit as leverage for other partisan priorities. The focus remains on reducing spending compared to the previous year. 

A "snap-back" provision is being considered to enforce cuts if Congress fails to meet new budget goals during the appropriations process, the report said.