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The House of Representatives with a Republican majority voted on Wednesday a text providing for an unprecedented drop in public spending in exchange for an increase in the American debt ceiling. A first victory for Republican speaker Kevin McCarthy, engaged in a showdown with Democratic President Joe Biden on the subject.
In the lying poker game being played out between the White House and the House of Representatives around the United States’ debt ceiling, Republican Kevin McCarthy scored his first points on Wednesday April 26, with the vote on his project providing for a unprecedented reduction in public spending in exchange for an increase in the ceiling.
His plan, which provides for a $4.5 trillion cut in federal spending over the next ten years in exchange for a $1.5 trillion increase in the public debt ceiling, currently at $31 trillion, was indeed passed by the Republican majority in the House of Representatives.
For Kevin McCarthy, it was not won. The discussions continued between Tuesday and Wednesday in order to convince all the Republicans, as his room for maneuver is weak, because of the reduced majority he has. It was also a test for the “speaker” of the House of Representatives, in order to prove his ability to bring together when necessary a party torn by centrifugal forces.
By achieving this, the Republican leader is increasing the pressure on Joe Biden, who embarked on Tuesday in the campaign for his re-election in 2024.
“Our group voted for the only plan in Washington that tackles the debt ceiling, ends excessive federal spending, and puts our country back on the path to sustainable growth,” Kevin McCarthy said in a statement. .
“The president was very clear, this text has no chance of becoming law,” White House spokeswoman Karine Jean-Pierre immediately reacted. “President Biden will never force the middle classes and workers to bear the brunt of tax cuts for the wealthy, as this text provides.”
Presidential Campaign Scent
The adopted bill also provides that Congress will have to decide again on the country’s debt ceiling at the end of March 2024, i.e. in the midst of the American presidential campaign, which would undoubtedly make it one of the major themes. .
This actually already started on Tuesday. Kevin McCarthy reacted to the announcement of Joe Biden’s candidacy by saying that the president seemed “focused on his own political future when he should be on the future of the United States”.
The vote obtained on Wednesday allowed him to drive the point home, saying that he “sends a clear message to President Biden: continuing to ignore the problem is not an option. The president must sit down at the table and negotiate”. “I will be happy to meet McCarthy, but not on whether or not to raise the debt ceiling. It’s non-negotiable,” assured the American president, during a press conference at the White House, before know the outcome of the vote.
The Democrats believe that the debt ceiling is not a negotiable subject, recalling that it does not concern new spending but those already voted in the past, from administrations from both parties. And for the United States, the stakes are high: never before has the country found itself in default on its debt and the latter serves as a safe haven for the global financial sector, due to the solidity of the American warranty.
Default possible at the beginning of June
A default “would cause an economic and financial disaster,” US Treasury Secretary Janet Yellen warned again on Tuesday. Unlike the majority of advanced economies, US debt is capped and its level must be voted on by Congress in order to keep up with its steady rise. A situation that has already occurred 78 times since the beginning of the 1960s, most often without difficulty.
Quickly finding a consensus is therefore a necessity for the United States, especially since the default could occur more quickly than initially expected. In a note published on Monday, Moody’s Analytics thus anticipates a risk of default “possibly at the beginning of June”, a risk which is beginning to be taken into account by investors, as evidenced by the costs of insurance to cover themselves against a payment default. United States, the highest since 2011.
Is Kevin McCarthy’s plan the solution then? Not necessarily because, according to Moody’s, the latter would have a real impact on the economy: a drop of 0.6 percentage point in American potential growth for 2024 as well as the destruction of 780,000 jobs, enough to make moderate Republicans tremble. .
“Congress must vote to raise or suspend the debt ceiling. It must do so without conditions. And it must not wait until the last minute,” said Janet Yellen on Tuesday.