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Four-day reprieve before US is officially bankrupt

Treasury Secretary Janet Yellen has found a few spare billions of dollars to keep the US operating for an additional four days.

Treasury Secretary Janet Yellen has found a few spare billions of dollars to keep the US operating for an additional four days. Photo: AP

Democrat and Republican negotiators have gained a few more days to reach a deal to raise the US government’s $31.4 trillion debt ceiling, as Treasury Secretary Janet Yellen said the government was likely to run out of money to pay its bills on June 5.

Her prior forecast was June 1.

US President Joe Biden and House of Representatives Speaker Kevin McCarthy need to reach an accord to raise the federal government’s self-imposed borrowing limit and avert a potentially disastrous default.

Negotiators appear to be nearing a deal to lift the limit for two years, but remain at odds over whether to stiffen work requirements for some anti-poverty programs.

Any agreement would have to win approval in the Republican-controlled House and the Democrat-led Senate before Biden could sign it into law – a process that could take more than a week.

Biden: ‘I’m optimistic’

Yet the President was upbeat as he left for the Memorial Day weekend at Camp David, declaring, “It’s very close, and I’m optimistic.”

With Republicans at the Capitol talking with Biden’s team at the White House, the president said, “There’s a negotiation going on. I’m hopeful we’ll know by tonight whether we’re going to be able to have a deal.”

The two sides have tentatively reached an agreement that would cap spending on many government programs next year, according to a US official.

But the safety-net programs remained a sticking point.

Biden and his fellow Democrats have resisted a Republican push to require childless adults under age 56 to show they are working or looking for work in order to qualify for the Medicaid health plan and the SNAP food-assistance program.

The Republican proposal would require more participants in those programs to show they are working or looking for work. That would save $120 billion over 10 years but also force more than a million Americans out of those programs, according to the nonpartisan Congressional Budget Office.

“I do not think it’s right that you borrow money from China to pay people to stay home – that are able-bodied with no dependents,” McCarthy told reporters.

Democrats have said the proposal would only create more red tape that would exclude people who would otherwise qualify.

A failure by Congress to raise its self-imposed debt ceiling before June 5 could trigger a default that would shake financial markets and send the United States into a deep recession.

Wall Street’s main indexes rose on Friday as investors hoped for progress in the negotiations. A two-year extension would mean Congress would not need to address the limit again until after the 2024 presidential election.

More guns, no butter

The deal under consideration would increase funding for the military and veterans care while essentially holding non-defence discretionary spending at current-year levels, according to the official, who spoke on condition of anonymity.

The deal might also scale back funding for the Internal Revenue Service, which got an extra $80 billion last year, in part to bolster enforcement and bring in more tax revenue. Republicans have sought to revoke that funding.

The White House is working on a way to preserve its effort to target wealthy taxpayers, the official said.

The Treasury Department had originally warned that it could be unable to cover all its obligations as soon as June 1. But it also went ahead with plans to sell $119 billion worth of debt that will come due on that date, suggesting to some market watchers that it was not an iron-clad deadline.

Several credit-rating agencies have said they have put the United States on review for a possible downgrade, which would push up borrowing costs and undercut its standing as the backbone of the global financial system.

A similar 2011 standoff led Standard & Poor’s to downgrade its rating on US debt.

-AAP

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