US House Speaker Kevin McCarthy accused President Joe Biden of not being “sensible” during a speech at the New York Stock Exchange on Monday, where he sought to gain the upper hand in negotiations with the White House over raising the debt ceiling.
Biden and congressional Democrats have called on Republicans to raise the debt ceiling, or federal borrowing limit, without conditions, and have said they are not open to negotiating on the issue. But McCarthy and House Republicans have sought to tie raising the debt ceiling to steep budget cuts.
McCarthy on Monday said House Republicans would vote “in the coming weeks” on a bill that would lift the debt ceiling into 2024 and “save taxpayers trillions of dollars” by capping federal spending, clawing back unspent Covid-19 relief funds and restoring work requirements for welfare programmes, among other Republican policy priorities.
But Democrats swiftly rejected the idea, with the White House accusing the Speaker of “engaging in dangerous economic hostage-taking” and outlining a “vague, extreme MAGA wish list that will increase costs for hard-working families”.
The stalemate carries real risks: the US Treasury earlier this year began taking “extraordinary measures” to meet its obligations, and a so-called “X-date” — when those measures run out and the government risks an unprecedented default — could come as soon as June, according to some estimates.
McCarthy on Monday accused the White House of stonewalling him, saying he had not “heard from the White House” since his first meeting with Biden in February.
“President Biden has been missing in action and misleading the public,” the Speaker said, addressing an audience of traders, local Republican party members and prominent Wall Street figures such as Jay Clayton, the former chair of the Securities and Exchange Commission.
“Make no mistake: The longer President Biden waits to be sensible, to find agreement, the more likely it becomes that his administration will bumble into the first default in our nation’s history,” McCarthy added.
The White House pre-empted McCarthy’s comments with a scathing statement accusing the Speaker of “holding the full faith and credit of the United States hostage, threatening our economy and hardworking Americans’ retirement”.
Andrew Bates, deputy White House press secretary, said: “There is one responsible solution to the debt limit: addressing it promptly, without brinkmanship or hostage-taking.”
The stand-off has started to cause jitters in financial markets. The cost of buying insurance against a US government default recently hit its highest level in more than a decade, and the IMF last week warned uncertainty was “adding to risks and volatility” in short-term government bond markets.
The US on Monday sold $57bn of three-month Treasury bills at a yield of 5.1 per cent, the highest yield since 2001, as concerns about the debt ceiling crisis have tainted bonds that mature around the time the US is expected to run out of money.
Asked on Monday about the market moves, McCarthy said: “The reason they’re going up is because the president has ignored us for 75 days.”
Stand-offs over the debt ceiling have become common in Washington in recent years. But investors are growing increasingly concerned about the current impasse given the apparent lack of common ground between the Biden administration and House Republicans, a handful of whom have suggested they are not afraid of the risks of default.
US Treasury secretary Janet Yellen has said an unprecedented default would be a “catastrophe”, while Federal Reserve chair Jay Powell has said “any deviations” from raising the debt ceiling would be “highly risky”.
McCarthy faces an uphill battle as he tries to shore up support from all factions of his party, given Republicans control the House by a razor-thin margin, meaning any small number of House members can hold up proceedings — a dynamic that was laid bare earlier this year when it took 15 ballots for McCarthy to be elected Speaker in January.
The Speaker prompted applause on Monday when he referenced the showdown over the debt ceiling in 2011 between the administration of then president Barack Obama and congressional Republicans, when the US avoided default but was hit with a downgrade to its prized triple A credit rating. Biden was vice-president at the time, and McCarthy quoted him as saying then that “you can’t govern” without negotiating.
“I wish the current extreme Joe Biden would listen to the former Joe Biden,” McCarthy said.
Additional reporting by Kate Duguid in London
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