Outline of deal to avoid US debt default emerging but key sticking points remain

US treasury secretary Janet Yellen has updated her assessment to Congress and now says the US government will run out of money on June 5th. That shifts back the deadline for current talks by a few days.

She said the federal government was required to make more than $130 billion in scheduled payments during the first two days of June — including money to military veterans and social security and medicare recipients

She said these payments would leave the treasury department with “an extremely low level of resources.”

She added that in the week of June 5th, the treasury was scheduled to make payments of $92 billion and that it would not have the money to meet these obligations.

Earlier, Speaker of the House of Representatives Kevin McCarthy has said it was “crunch time” in talks aimed at avoiding a US debt default amid reports that the outline of a deal was coming together.

US media reported that the White House and Republicans in the House of Representatives were closing in on an agreement that would raise the US debt ceiling for a two-year period while putting in place caps on government spending with the exception of expenditure on the military and on veterans.

High earners

US media reports also maintained that under the outline deal being pursued, about $10 billion (€9.3 billion) would be removed from a planned $80 billion allocation to the US internal revenue service, which was earmarked originally to fund a crackdown on tax evasion by high earners and corporations. This measure has been championed by US president Joe Biden and his Democratic Party but strongly opposed by Republicans.

There have been some suggestions that the $10 billion removed from the funding for the revenue service could be used to soften the blow in relation to cuts in other areas such as education or environmental protection.

However, sticking points remain before an overall deal can be secured. This includes Republican demands for tighter work requirements for access to some federal social programmes and new rules governing energy generation, including oil and gas projects.

[ UK shares mixed on inflation worries and US debt ceiling gloom ]

[ The Irish Times view on the US debt ceiling talks: going to the wire ]

In the meantime, the Biden administration and Mr McCarthy are under pressure from their left and right flanks who are unhappy with proposed elements of the outline deal, which have been leaked.

Covering obligations

Mr McCarthy acknowledged on Thursday that not everyone would be happy with the outcome at the end of the day.

The US treasury department had warned that it could be unable to cover all its obligations as soon as June 1st, but also has made plans to sell debt worth $119 billion that will come due on that date, suggesting to some market observers that this was not a cast-iron deadline. Hard-line Republicans had expressed scepticism about the timelines advanced by Ms Yellen for the Government to run out of money to pay its bills.

However, brinkmanship over the debt ceiling unnerved investors. US deputy treasury secretary Wally Adeyemo said it had pushed the government’s borrowing costs up by $80 million so far.

Several credit-rating agencies have warned they have put the United States on review for a possible downgrade, which would also increase borrowing costs and undercut the US’s standing as the backbone of the global financial system.

1 of 22