May 23, 2023 Latest on debt ceiling negotiations

Republican negotiators Patrick McHenry and Garret Graves told reporters that negotiations are not going well at all and the White House needs to realize they have to agree to cut spending or no deal can be reached. It was a sober assessment that was in stark contrast to the rosier takes at the White House yesterday. 

"They have a tax crisis and they have a debt crisis," Graves said. "We're not going to be able to make this deal. We're not going to be able to move forward." The Republican claimed that Democrats "try to continue the same trajectory of overspending" and "overtaxing" while burdening the next generation with a "debt that absolutely they cannot afford and certainly didn't create."

McHenry once again said the "lack of urgency is apparent."

Asked what changed between the White House meeting yesterday and the staff meeting last night that caused him to sound so pessimistic, McHenry said: "I thought the White House meeting was reasonably productive. What we need is a team that is fully empowered by the White House to get the thing done. The White House still has this expectation that they can spend more money next year." 

When asked if Republicans would be willing to accept anything less than returning spending to full-year 2022 levels, McHenry responded: “Everybody's trying to figure out some way to shimmy this thing around. It's fundamental. You're spending less money next year than you're spending this year." 

Graves told reporters that as the negotiators deal with spending, they also have to be dealing with the reality of the other issues that have become part of these talks, including clawing back unspent Covid funds, new work requirements and other issues.

"I think that we need to address those issues first because then it gives us an idea of what type of gap we've got to address," the Republican from Louisiana said. 

A number of Republicans – even some who haven’t always backed House Speaker Kevin McCarthy – said they are standing by the speaker and are happy with how he’s negotiated up until this point. 

“I am very confident in Kevin McCarthy as our speaker,” Rep. Nancy Mace, a Republican from South Carolina, told CNN. “I don’t want speaker McCarthy’s job. That’s a very tough job … he’s got the five families to deal with and a caucus of one right here. He’s doing a great job of pulling people together.”

Asked if McCarthy’s speakership would be at risk if the speaker brought down a watered-down version of the debt ceiling bill the House already passed, Rep. Ralph Norman, a Republican from South Carolina, told CNN, “I am not going there.” 

“Kevin got to 218 for a reason and he did a good job,” Norman said. Norman has been among the loudest conservatives saying he doesn’t want McCarthy to bring anything back that isn’t the same as the bill the House already passed.

Rep. Tim Burchett, a Republican from Tennessee who actually voted against the House’s GOP debt ceiling plan, said McCarthy "is very good at deal cutting. I trust him.” 

House Majority Leader Steve Scalise said the Treasury Department appears to be “hedging” on the June 1 default date, and that more “transparency” is needed from Secretary Janet Yellen.

“What we'd like is to see more transparency on how they come to that date. But Janet Yellen herself actually left the door open to delaying that in her tweets yesterday. The comments that she sent out yesterday implied that it's June 1 or later, giving some openness to the idea that June 1 may not be the so called X-date,” he said. “It looks like they're hedging now and opening up the door to move that date back.” 

The comments echo what members of the right-flank House Freedom Caucus have been saying, suggesting that the X-date is fungible.

“We haven’t seen her work,” HFC Chair Scott Perry told CNN. “We haven’t seen any figures. We also know that the quarterlies are coming in at the end–at the middle of the month... There’s absolutely no reason to do this and we all know it.”

House Majority Whip Tom Emmer suggested members of Congress in the Senate “come back from their short vacation” and pass the House bill, which cleared the House on a party-line vote and has been deemed dead on arrival in the upper chamber.

Emmer also attempted to put the blame on Democrats and President Joe Biden if the government ultimately defaults on its debt, parroting talking points circulated by House Speaker Kevin McCarthy's office Tuesday morning about the timeline of negotiations. "The question actually remains, 'What is Joe Biden and his administration willing to give to provide solutions to the debt ceiling crisis and put this country on a better financial path?' ... It is Joe Biden and the Democrats who will have to explain to every American why they decided to default for the first time in this nation."

Scalise reaffirmed that GOP leaders believe the requirement on Congress to regularly raise the debt limit is useful for keeping a check on federal spending, despite some lawmakers questioning whether it's a constructive mechanism.

White House negotiators arrived at the Capitol moments ago to resume talks on the debt ceiling at 11 a.m. ET.

They did not comment on the status of negotiations but did acknowledge the press corps.  

White House aide Steve Ricchetti said they are “good” and “got about the same amount (of rest) you did.” 

And Office of Management and Budget Director Shalanda Young added, “you’re out early, you’re out late.” 

They refused to answer any other questions. “We are just going to work,” Ricchetti added. 

Financial experts predict the S&P 500 could dip by more than 40% if the US economy experiences a long-term debt default. 

“The real concern is whether it's going to be long and protracted. That is where you get some unprecedented downturns really. The market could tank more than 40%,” Doug Flynn, co-founder of Flynn Zito Asset Management, told CNN's Christine Romans Tuesday. 

Political risk analyst Maximilian Hess echoed Flynn’s sentiments, saying the nation’s ability to borrow in the future could be compromised if Congress doesn’t come to an agreement to raise the debt limit before the looming “X” date. 

Hess added that public trust could be forever eroded if the United States fails to pay its debts.  

“The US dollar and the US debt system is essentially an anti-fragile system,” Hess said. “The loss of trust could push others to move into other currencies, such as the Chinese yuan and renminbi. Those are things that are not in the US geopolitical and geoeconomic interests.”  

The debt — which is owned by the public, pension funds, insurance companies and, to a lesser extent, foreign governments — is considered a safe form of investment and an important backbone of the economy.

House Speaker Kevin McCarthy told Republicans during a closed-door meeting that they are still far from reaching a bipartisan agreement on the debt ceiling and asked his members to continue to remain united behind him, according to sources in the room.

But during the open mic portion of the meeting, at least one hardline member – Rep. Chip Roy of Texas – complained about Republicans seeking a compromise that waters down what they passed in the House, according to a source in the room. Roy said it’s about saving the country, not seeking a deal.

Meanwhile, Republican Study Committee chair Kevin Hern said the speaker told members they should go home to their districts if a deal isn't reached by the White House and Republican negotiators by Memorial Day weekend. Members can always be called back, but Hern told reporters that this is a deal that has to be reached between a few key people.

"The negotiations are with the speaker and his team and the White House and their team. And so the rest of us being here, just waiting around, doesn't do any good for anyone," Hern said. 

GOP Rep. Garret Graves, one of the key negotiators representing House Speaker Kevin McCarthy in debt limit talks with the White House, said “we’re still far apart,” after they met late last night. 

“We’re still far apart. Until this administration is willing to recognize that they are having record spending, record deficits and record taxes, then we're not going to be able to come together,” he said. 

Graves said the White House’s refusal to cut spending is “a red line” for House Republicans. 

“They are refusing to truly change the trajectory, to truly reduce spending, and that is a red line," he said.

Asked about the time crunch to pass a deal before the nation defaults, Graves said, “I'm very concerned about timing, which is why they need to come to the table, which is why it was irresponsible for them to wait 100 days before they were willing to engage and begin having these conversations.”

He argued that the White House negotiators are not willing to work around the clock. “We told them on the first day of negotiations that we would stay in that room 24 hours. We told them that. They said, ‘No let's wait, let's break, let's do meetings in the morning and afternoons.’”

He continued, “Our commitment stands. We’ll work all night, we'll do 24 hours but we're not going to continue on this trajectory. It's irresponsible and it jeopardizes the future the next generation.”

With just over a week until the United States is expected to default on its debt, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said it’s worth considering suspending the debt limit after the current situation is resolved.

In the event of a default, which Kashkari said he does not anticipate happening, the Fed does not have any ability to protect Americans from the economic downsides, he said.

"A default would be a message of eroding confidence in America," he said. "We [the Federal Reserve] can't do anything about that. Only Congress and the executive branch can fix this."

The United States risks could run out of money to pay its bills if Congress is not able to reach an agreement on the debt ceiling.

It could happen as soon as June 1, according to warnings from Treasury Secretary Janet Yellen, and could have potentially have far-reaching and dire consequences for Americans, including people who receive benefit payments or run a small business or who are trying to buy a home.

We’re hoping to hear from you about how closely you’re watching these developments; what actions, if any, you’ve taken to prepare in case of a default; and how you think this could affect you, your job and your family.

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