US debt crisis: Joe Biden closes the deal, but at a price

Joe Biden tried to make the best of the fiscal truce he negotiated late Saturday with Republican House Speaker Kevin McCarthy to prevent a devastating US debt default in just over a week.

“The agreement represents a compromise, which means that not everyone will get what they want,” the US president said. “It is the responsibility of governance.”

While the pact bolsters Biden’s reputation for bipartisan deal-making, it comes at a price. He pleaded with Congress for months to raise the nation’s $31.4 billion debt without a fight, only to find himself embroiled in frantic budget talks in Washington that forced him to cut short a trip to Asia.

Many Democrats — especially those on the far left — have grown increasingly unhappy with the terms of the deal as it unfolded this week, fearing it has made 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,” Sen. Sheldon Whitehouse, a Democrat from Rhode Island, told the Financial Times ahead of the deal. “The issue is that when you’re negotiating with a fanatic who has a hand grenade, the situation can become very precarious.”

The agreement was sealed by a phone conversation between McCarthy and Biden on Saturday evening. The Republican speaker of the House of Representatives announced this in a cutting Twitter post shortly after 9 p.m. ahead of Biden. “I just got off the phone with the president,” McCarthy wrote. “After wasting time and refusing to negotiate for months, we have reached an agreement in principle that is worthy of the American people.”

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Biden has won some political victories and conceded some defeats in the pact. Republicans have proposed raising the debt limit for one year and spending restrictions for a decade. Finally, Biden secured an increase in the borrowing limit until the next presidential election. Non-defense spending will be roughly flat in fiscal year 2024, then rise 1 percent the following year. Biden’s defense budget request remains intact.

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

“Not the best timing for fiscal tightening as the economy is fragile and risks of recession are high, but manageable.”

Finalizing the deal with McCarthy required a leap of faith from Biden that the Republican president would be able to provide the necessary support to pass the bill when it comes to a House vote, likely on Wednesday.

While other House Republican leaders and party moderates are likely to accept the deal, the biggest threat comes from angry conservatives who say McCarthy watered down their original proposal too much. “I don’t like the ‘business’ as I understand from the cheerleaders so far,” Texas House Republican Chip Roy wrote Saturday night.

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Ken Buck, R-Colorado, said he was “appalled by the passage of the debt ceiling.”

“The bottom line is that the United States will be $35 billion in debt in January 2025. This is completely unacceptable,” Buck tweeted.

McCarthy will almost certainly need Democratic votes to pass the deal in the House, as he has a slim majority. For this, Biden will have to play a key role in the coming days to overcome it.

Some Democrats are unhappy with Biden’s handling of the crisis at a time when the party’s left is already unhappy with what they see as compromises on immigration and energy policy.

In addition to spending limits, Democrats have been fighting the introduction of new restrictions on social safety net programs, primarily food aid. Although Biden was able to limit the changes and provide for the homeless and veterans, progressive groups saw this as a harmful concession.

“The deal represents conservative fiscal ideology at its worst; it reduces investment in workers and families, creates burdensome and wasteful new barriers for families in need, and protects the wealthiest Americans and largest corporations from paying their fair share of taxes,” said Lindsay Owens, executive director of the Groundwork Collaborative. -leaning economic think tank.

But the alternative to a deal was unthinkable for Biden. If Congress rejects the package, it could throw financial markets into chaos, threaten a strong labor market and deal a major blow to US economic leadership around the world.

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Biden may not be politically strong enough to withstand such a blow. In past fiscal debates, Democratic administrations have successfully portrayed Republicans as fiscal extremists. However, mixed polls in recent weeks show that Biden has no clear advantage this time around.

“If there is a recession as a result, the president will be heavily blamed, as will the Republicans,” said Jay Campbell, a pollster at Hart Research. “What happens politically at this point is really anyone’s guess.”

Biden was pushed by his party to ignore the debt ceiling and continue borrowing on constitutional grounds, citing the 14th Amendment, which states that the validity of the US debt “shall not be questioned.”

But his administration insisted that such a unilateral solution – and other alternatives – would be unfeasible and legally risky. Still, some critics have suggested that Biden should have acted more aggressively against Republicans to force McCarthy to stand down.

Biden has spoken sparingly about the fiscal talks in recent days, much less so than McCarthy and Republican negotiators, who helped limit hostilities in the final stages. A more overtly confrontational posture would have gone against Biden’s nature and hurt the business’s prospects.

“Biden is normal.” [and] there is no drama, this is the gestalt of the administration,” said a senior Democratic strategist.