US debt crisis: Joe Biden made a deal, but had to pay the price

Joe Biden tried to make the best of the fiscal tussle late Saturday during talks with Republican House Speaker Kevin McCarthy designed to prevent a potentially catastrophic default on the US debt in less than a week.

The US President said, “The settlement represents a compromise, which means that not everyone gets what they want.” “It is the responsibility of governing”.

While the agreement would cement Biden’s reputation for bipartisan dealmaking, it comes at a cost. For months he pleaded with Congress to raise the country’s $31.4tn borrowing limit without a fight, only to be forced to cut short a trip to Asia as he became involved in frenetic budget negotiations in Washington.

Many Democrats – especially those farthest to the left – have grown increasingly unhappy about the terms of the deal as it came together this week, worrying he was making too many concessions.

“I think the White House is trying to do a good job and the president’s heart is certainly in the right place,” Democratic Senator Sheldon Whitehouse of Rhode Island told the Financial Times ahead of the deal. “The question is when you’re negotiating with a fanatic who has a hand grenade, the situation can be very precarious.”

The deal was sealed in a Saturday evening phone call between McCarthy and Biden. The Republican House speaker made the announcement with a cutting Twitter post shortly after 9 p.m. before Biden. McCarthy wrote, “I got off the phone with the President a while back.” “While they wasted time and refused to negotiate for months, we have come to an agreement in principle that the American people deserve.”

Biden was able to score some policy victories as well as admit some defeats in the deal. Republicans had proposed a one-year debt ceiling increase, along with a decade-long spending cap. Ultimately, Biden secured an increase in the borrowing limit until after the next presidential election. Non-defense spending will remain roughly flat in fiscal year 2024, then increase by 1 percent the following year. Biden’s defense budget demand will remain intact.

As details of the deal emerged this week, Moody’s Analytics chief economist Mark Zandi said it would not deal a major blow to the economy. “We estimate that this will reduce employment to less than 120,000 at the peak of the impact in late 2024,” Zandi said.

“Not the greatest of times for financial restraint as the economy is fragile and recession risks are high, but it is manageable.”

Finalizing the deal with McCarthy required a leap of faith on Biden’s part that the Republican speaker would be able to muster the support needed to pass the bill when it comes to a vote on the House floor, probably Wednesday. To.

While other Republican leaders in the House as well as party moderates are likely to embrace the deal, the biggest threat comes from angry conservatives who believe McCarthy watered down too much of his initial offer. Chip Roy, a Texas House Republican, tweeted Saturday night, “I don’t like ‘the deal’ as I understand it so far from cheerleading.”

Colorado Republican Ken Buck said he was “appalled by the debt limit surrender”.

“The bottom line is that in January, 2025, America will be $35 trillion in debt. This is completely unacceptable,” Buck wrote on Twitter.

McCarthy would almost certainly need Democratic votes to pass the deal through the House, given his slim majority. For this, Biden will have to play an important role in the coming days to bring it in line.

Some Democrats are unhappy with how Biden has handled the crisis at a time when the party’s left wing is already angry about what they see as his compromise on immigration and energy policy.

As well as spending limits, Democrats have been up in arms over adding new restrictions on eligibility for Social Security-net programs, primarily food assistance. Although Biden was able to limit the changes and secure a carve out for homeless people and veterans, progressive groups saw it as a harmful concession.

“The deal represents the worst of conservative budget ideology; It cuts investment in workers and families, adds onerous and useless new barriers to families in need of support, and shields the wealthiest Americans and biggest corporations from paying their fair share in taxes,” Groundwork Collaborative said Lindsay Owens, executive director of the Economic Research Institute, a left-leaning economic think-tank.

But the deal’s alternative was unimaginable to Biden. If the package is rejected by Congress, it could plunge financial markets into chaos, threaten a strong labor market and deal a heavy blow to US economic leadership around the world.

Politically, Biden may not be strong enough to withstand such a hit. In previous fiscal impasses, Democratic administrations successfully portrayed Republicans as fiscal extremists. But mixed polls in recent weeks show Biden has no clear edge this time around.

Jay Campbell, a pollster with Hart Research, said, “If it results in a recession, the president will receive substantial blame, as will Republicans.” “What happens politically at that point is really anyone’s guess”.

Biden has been pressured by his party to ignore the debt limit by invoking the 14th Amendment and keep borrowing on constitutional grounds, saying the legality of the US debt “shall not be called into question”.

But his administration has insisted that such a unilateral solution – and other options – would be unworkable and legally risky. Regardless, some critics have suggested that Biden should have been more aggressive with Republicans in forcing McCarthy to stand down.

Biden has spoken modestly about the financial talks in recent days, much less so than McCarthy and Republican negotiators, which helped limit any hostilities in the final stretch. Taking a more openly confrontational approach would have gone against Biden’s temperament and hurt his chances of a deal.

A senior Democratic strategist said, “Biden’s normalcy (and) there’s no drama, it’s a gesture from the administration.”

Joe Biden tried to make the best of the fiscal tussle late Saturday during talks with Republican House Speaker Kevin McCarthy designed to prevent a potentially catastrophic default on the US debt in less than a week.

The US President said, “The settlement represents a compromise, which means that not everyone gets what they want.” “It is the responsibility of governing”.

While the agreement would cement Biden’s reputation for bipartisan dealmaking, it comes at a cost. For months he pleaded with Congress to raise the country’s $31.4tn borrowing limit without a fight, only to be forced to cut short a trip to Asia as he became involved in frenetic budget negotiations in Washington.

Many Democrats – especially those farthest to the left – have grown increasingly unhappy about the terms of the deal as it came together this week, worrying he was making too many concessions.

“I think the White House is trying to do a good job and the president’s heart is certainly in the right place,” Democratic Senator Sheldon Whitehouse of Rhode Island told the Financial Times ahead of the deal. “The question is when you’re negotiating with a fanatic who has a hand grenade, the situation can be very precarious.”

The deal was sealed in a Saturday evening phone call between McCarthy and Biden. The Republican House speaker made the announcement with a cutting Twitter post shortly after 9 p.m. before Biden. McCarthy wrote, “I got off the phone with the President a while back.” “While they wasted time and refused to negotiate for months, we have come to an agreement in principle that the American people deserve.”

Biden was able to score some policy victories as well as admit some defeats in the deal. Republicans had proposed a one-year debt ceiling increase, along with a decade-long spending cap. Ultimately, Biden secured an increase in the borrowing limit until after the next presidential election. Non-defense spending will remain roughly flat in fiscal year 2024, then increase by 1 percent the following year. Biden’s defense budget demand will remain intact.

As details of the deal emerged this week, Moody’s Analytics chief economist Mark Zandi said it would not deal a major blow to the economy. “We estimate that this will reduce employment to less than 120,000 at the peak of the impact in late 2024,” Zandi said.

“Not the greatest of times for financial restraint as the economy is fragile and recession risks are high, but it is manageable.”

Finalizing the deal with McCarthy required a leap of faith on Biden’s part that the Republican speaker would be able to muster the support needed to pass the bill when it comes to a vote on the House floor, probably Wednesday. To.

While other Republican leaders in the House as well as party moderates are likely to embrace the deal, the biggest threat comes from angry conservatives who believe McCarthy watered down too much of his initial offer. Chip Roy, a Texas House Republican, tweeted Saturday night, “I don’t like ‘the deal’ as I understand it so far from cheerleading.”

Colorado Republican Ken Buck said he was “appalled by the debt limit surrender”.

“The bottom line is that in January, 2025, America will be $35 trillion in debt. This is completely unacceptable,” Buck wrote on Twitter.

McCarthy would almost certainly need Democratic votes to pass the deal through the House, given his slim majority. For this, Biden will have to play an important role in the coming days to bring it in line.

Some Democrats are unhappy with how Biden has handled the crisis at a time when the party’s left wing is already angry about what they see as his compromise on immigration and energy policy.

As well as spending limits, Democrats have been up in arms over adding new restrictions on eligibility for Social Security-net programs, primarily food assistance. Although Biden was able to limit the changes and secure a carve out for homeless people and veterans, progressive groups saw it as a harmful concession.

“The deal represents the worst of conservative budget ideology; It cuts investment in workers and families, adds onerous and useless new barriers to families in need of support, and shields the wealthiest Americans and biggest corporations from paying their fair share in taxes,” Groundwork Collaborative said Lindsay Owens, executive director of the Economic Research Institute, a left-leaning economic think-tank.

But the deal’s alternative was unimaginable to Biden. If the package is rejected by Congress, it could plunge financial markets into chaos, threaten a strong labor market and deal a heavy blow to US economic leadership around the world.

Politically, Biden may not be strong enough to withstand such a hit. In previous fiscal impasses, Democratic administrations successfully portrayed Republicans as fiscal extremists. But mixed polls in recent weeks show Biden has no clear edge this time around.

Jay Campbell, a pollster with Hart Research, said, “If it results in a recession, the president will receive substantial blame, as will Republicans.” “What happens politically at that point is really anyone’s guess”.

Biden has been pressured by his party to ignore the debt limit by invoking the 14th Amendment and keep borrowing on constitutional grounds, saying the legality of the US debt “shall not be called into question”.

But his administration has insisted that such a unilateral solution – and other options – would be unworkable and legally risky. Regardless, some critics have suggested that Biden should have been more aggressive with Republicans in forcing McCarthy to stand down.

Biden has spoken modestly about the financial talks in recent days, much less so than McCarthy and Republican negotiators, which helped limit any hostilities in the final stretch. Taking a more openly confrontational approach would have gone against Biden’s temperament and hurt his chances of a deal.

A senior Democratic strategist said, “Biden’s normalcy (and) there’s no drama, it’s a gesture from the administration.”