Default Looms as Deal on US Debt Ceiling Close

By Staff, Agencies

US President Joe Biden and top congressional Republican Kevin McCarthy are closing in on a deal that would raise the government’s $31.4 trillion debt ceiling for two years while capping spending on most programs.

A default could upend global financial markets and push the United States into a major recession. Credit rating agency DBRS Morningstar put the US on review for a possible downgrade on Thursday, echoing similar warnings by Fitch, Moody’s and Scope Ratings.

Fitch warned it could downgrade the US’s triple A rating because of the “brinkmanship” over the debt limit. Another agency, S&P Global, downgraded US debt following a similar debt-ceiling standoff in 2011.

The months-long standoff has spooked Wall Street, weighing on US stocks and pushing the nation’s cost of borrowing higher. Deputy Treasury Secretary Wally Adeyemo said concerns about the debt ceiling had pushed up the government’s interest costs by $80m so far.

The potential agreement would increase funding for discretionary spending on military and veterans while essentially holding a non-military discretionary spending at current year levels, an official, who requested anonymity, told Reuters news agency.

“Time’s up for all of these games around here,” Democratic Representative Don Davis, a US Air Force veteran, said at a press conference.

The White House is considering scaling back its plan to boost funding at the Internal Revenue Service to hire more auditors and target wealthy Americans, the official said.

A second US official said IRS funding is an open issue, but the main thrust is ensuring the agency executes the president’s priorities, even if there is a small haircut or funding is moved around.