UPDATED 2:55 P.M.
WASHINGTON (Reuters) – The U.S. Senate postponed a vote to head off a federal debt default on Wednesday as Democrats considered a Republican proposal that could potentially defuse the partisan standoff that threatens the broader economy.
Democrats called off an early afternoon vote and planned a closed-door meeting after Senate’s top Republican, Mitch McConnell, floated a plan that would buy more time to resolve the issue. McConnell proposed that his party would allow an extension of the federal debt ceiling into December.
Without congressional action to raise the $28.4 trillion debt limit, the Treasury Department has forecast that it will run out of ways to meet all its obligations by Oct. 18.
It was not clear if Democrats would accept McConnell’s offer, given that it still hinged on the Senate eventually hiking the debt limit without Republican votes through a process called budget “reconciliation.” Both President Joe Biden and Senate Majority Leader Chuck Schumer have rejected that course.
“We will … allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December,” McConnell said in a statement on Wednesday.
Democrats’ reaction to McConnell’s proposal ranged from skeptical to angry.
“That sounds like a terrible idea,” said Senator Chris Murphy. “It sounds like more games from Senator McConnell.”
Senator Mazie Hirono had a blunter label, calling the offer “bullshit.”
If Democrats go along with the proposal, they would have to address the issue again in December, just as federal funding is due to expire. That could complicate their efforts to pass two massive spending bills that make up much of Biden’s domestic agenda.
Schumer did not immediately respond to questions about the offer.
There are less than two weeks to go before the Treasury Department expects to run out of ways to meet the government’s expenses. The Bipartisan Policy Center said on Wednesday that unemployment insurance payments, salaries for millions of federal employees and medical insurance payments could be delayed without a debt-ceiling hike.
Analysts say a default could upend the global financial system and cause millions of lost jobs.
Even a close call would likely be damaging. A 2011 debt ceiling dispute that Congress resolved two days before the borrowing limit was due to be reached caused stocks to tumble and prompted a first-ever credit downgrade for U.S. debt.
Moody’s Investors Service said on Tuesday it expects Washington will ultimately raise the debt limit, however, and U.S. stock indexes rose on Wednesday as investors grew more optimistic that Congress could reach a deal.
A more telling indication of investor relief was evident in the U.S. Treasury market, which would be directly affected by a U.S. default. Rates on 1-month T-bills – the securities most likely to be impaired by a failure of the government to pay interest or principal on the debt immediately after the deadline – dropped sharply in an indication that investors were again willing to buy them.
Democrats are looking at other options to resolve the standoff.
Biden said on Tuesday that Democrats might weaken a long-standing rule, known as the filibuster, which requires 60 votes to advance most legislation in the 100-seat Senate.
But that idea seemed unlikely to succeed, as a key centrist, Senator Joe Manchin, said he would not support it.
Republicans have already used the filibuster requirement to block two previous attempts to raise the debt ceiling.
Reconciliation can be a long process, sometimes involving all-night sessions, but McConnell said on Wednesday that Republicans would support steps to speed it up.
Republicans had been expected to block the bill that was up for a vote on Wednesday, which suspended the debt limit until December 2022, after the midterm elections that will determine which party controls Congress for the next two years.
It was not clear when the Senate would meet to consider the bill, which has already been passed by the Democratic-controlled House of Representatives.
(Reporting by Richard Cowan and David Morgan, additional reporting by Makini Brice, Susan Cornwell and Steve Holland; Writing by Andy Sullivan; Editing by Scott Malone, Howard Goller and Sonya Hepinstall)
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WASHINGTON (Reuters) -Top U.S. Senate Republican Mitch McConnell on Wednesday said his party would support an extension of the federal debt ceiling into December, a move that would head off a historic default with a heavy economic toll.
That could provide an off-ramp to a months-long standoff between President Joe Biden’s Democrats and McConnell’s Republicans, who were expected to block on Wednesday a third attempt by Senate Democrats to raise the $28.4 trillion debt ceiling.
“To protect the American people from a near-term Democrat-created crisis, we will also allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December,” McConnell said in a statement on Wednesday.
The Wednesday afternoon procedural vote is intended to allow the Senate to begin debating a bill that would suspend the debt limit until December 2022, after elections that will determine control of Congress for the next two years.
That passed the Democratic-controlled House of Representatives last week but Republicans have stalled it in the Senate with the filibuster.
Without a quick resolution, some government services might be suspended, such as delivering Social Security benefit checks.
(Reporting by Richard Cowan and David Morgan, additional reporting by Andy Sullivan, Makini Brice, Susan Cornwell and Steve Holland; Editing by Scott Malone, Sonya Hepinstall and Howard Goller)
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WASHINGTON (Reuters) -U.S. President Joe Biden piled the pressure on congressional Republicans to vote for a debt ceiling increase in a meeting with bank and business leaders at the White House on Wednesday, saying their opposition would take America “right to the brink.”
During the meeting with leaders of JPMorgan Chase & Co, Intel Corp, Citigroup, Bank of America, Raytheon Technologies Corp, Nasdaq Inc and Deloitte, Biden said raising the debt ceiling is about “paying for what we owe.”
“Our markets are rattled, Americans’ savings are on the line…our Republican friends need to stop playing Russian roulette with the economy,” Biden said.
Biden said Republicans were planning to block a debt limit vote in the Senate on Wednesday.
“It’s not right and it’s dangerous,” he said.
Treasury Secretary Janet Yellen has estimated that a U.S. debt default could occur around Oct. 18 if Congress fails to give the government additional borrowing authority beyond the current statutory limit of $28.4 trillion, which was reimposed after a two-year suspension expired in late July.
At the White House meeting, Yellen said the issue was urgent. “This would be a catastrophic outcome,” she said, adding the United States would likely face a financial crisis and could slip into a recession.
Republicans want Democrats to raise the debt ceiling using reconciliation, a process that would not require Republican votes; Democrats have refused, saying Republicans should join them in the vote because the debt includes about $8 trillion in spending approved during Republican Donald Trump’s presidency.
CORPORATE AMERICA VERSUS REPUBLICANS
A rift over the debt limit has been growing between corporate America and congressional Republicans traditionally aligned on economic issues.
A U.S. debt default would severely hurt the country’s credit rating, plunge the global financial system into turmoil and poses a major risk to company stock prices.
Chief executives of large American banks at the White House expressed alarm at the potential fallout.
JP Morgan CEO Jamie Dimon said the impact could lead to a global catastrophe, urging lawmakers to show “American competence, not American incompetence.”
“We should never even get this close…we don’t need to have this kind of brinkmanship every couple of years,” Dimon said.
Nasdaq CEO Adena Friedman also urged immediate action. When Biden asked her about the fallout if the United States were to default even for a day, Friedman said “we would expect the markets would react very very negatively.”
Others such as Citigroup’s Chief Executive Jane Fraser warned consumers can be burdened with higher borrowing costs very quickly. “We just can’t wait til the last minute to resolve this. We are simply playing with fire right now.”
A coalition of groups representing investment firms and banks warned congressional leaders in a letter last week that a default would severely hurt financial markets.
“The United States of America defaulting on its obligations is not an option; we are counting on Congress to take the necessary steps to address the debt limit,” wrote Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce, the nation’s largest corporate lobbying group.
The Chamber spent $82 million on corporate lobbying in 2020, according to OpenSecrets, a research group that tracks political donations. Three-quarters of its campaign contributions went to Republicans in 2020, the group found.
“I didn’t even know the Chamber was around anymore,” U.S. House of Representatives Republican leader Kevin McCarthy told reporters on Wednesday, when asked about the business group’s position. He said the lobbying group will have no influence if Republicans take the majority in congressional elections next year.
(Reporting by Steve Holland and Nandita Bose; Editing by Heather Timmons, Howard Goller and Sonya Hepinstall)
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