US President Joe Biden met Republican Majority Leader Kevin McCarthy, Tuesday, in another round of negotiations to pass the decision to raise the public debt ceiling from Congress. The consequences of the failure of these negotiations began to be reflected in the value of the dollar, which witnessed a continuous decline.
US President Joe Biden met, on Tuesday, the leader of the Republican majority in Congress, Kevin McCarthy, in another round of difficult negotiations led by the US administration with the Republicans, in order to agree to raise the federal public debt ceiling.
Earlier, Treasury Secretary Janet Yellen had warned that the Republican majority's obstruction of the decision to raise the debt ceiling would have dire consequences for the country's economy, including the deterioration of the value of the dollar, while these consequences began to be reflected in the US currency, which is witnessing a continuous decline.
Will Biden succeed in getting out of the “debt ceiling” impasse?
The US president enters this meeting after negotiations stalled on Friday, as the Republican delegation left the room where they were taking place before reaching an agreement on raising the debt ceiling that the government demands. And the exchange of the ruling Democratic Party and the Republicans who control the House of Representatives accusations about the failure of those talks until today.
Republican House Speaker Kevin McCarthy told reporters he did not believe the talks could move forward before President Joe Biden returns to the country from the G7 meeting in Japan. And McCarthy accused the Democrats of taking what was described as a "very far-left stance" over their rejection of the spending cuts proposals.
Republicans are calling for a reduction in public spending, in return for ratifying an increase in the federal debt ceiling. According to the Washington Post, Biden aides made what they saw as a major concession by proposing that Congress largely keep spending flat on a wide range of domestic programs, including education, scientific research and housing assistance.
The president's negotiators have basically proposed keeping military spending flat for next year, but Republicans want to increase military spending, increase spending on veterans, and reduce domestic spending.
After this stumble, on Sunday President Biden held phone conversations with the Republican majority leader. McCarthy said after calling Biden: "I think we can solve some of these problems if he understands what we're looking for," adding: "But I was very clear with him from the beginning. We have to spend less money than we spent last year. "
The US Treasury had previously warned against reaching an agreement on raising the debt ceiling by June 1, which would put the government in a liquidity crisis, as it would default on its financial obligations. He hopes that Tuesday's meeting will mark the beginning of the end of this political and economic throes that the country is going through, with the two leaders reaching a preliminary agreement to push the negotiations forward.
It is noteworthy that if an agreement is not reached, Biden may resort to activating Article 14 of the US Constitution, which he hinted at using in his speech on Sunday, saying: “There will be no default, and we are studying the activation of Article 14 (of the US Constitution) to see If we had legal authority" to bypass Congress.
Article 14, which was added to the US Constitution in 1868, stipulates that “the validity of the public debt of the United States permitted by law shall not be in dispute,” meaning that expenditures approved by vote must be respected, including pensions, which makes it It is theoretically possible for the Biden administration to circumvent the commitment to raise the debt ceiling.
The dollar fell and Wall Street feared
The repercussions of the continued faltering of the negotiations to raise the federal debt ceiling began to reflect on the US economy, before falling into the state default. US Treasury Secretary Janet Yellen had previously warned that failure to raise the debt ceiling would cause a sharp economic contraction in the US and weaken the dollar's position as the global reserve currency.
The US federal debt reached a record level in mid-January, crossing the threshold of $31.4 trillion. "Our current projections are that at the beginning of June we will be unable to pay our bills unless Congress raises the debt ceiling which I strongly urge Congress to do," Yellen added.
Default threatens to lower the credit rating of the United States, which is an economic catastrophe for the country's economy, in addition to the banking crisis and the economic recession that is expected to hit it, as this reduction leads to an increase in borrowing costs for companies and homeowners alike, and affects the Consumer confidence, which may result in a shock in the US financial market and push the economy into an additional recession.
In addition to this, the value of the dollar in the global market is based on the credit efficiency of government treasury bonds and the country's financial stability. Therefore, in the event of a downgrade in the country's credit rating, the value of the dollar will be negatively affected in the global trading markets.
Investors' fear of the failure of the Biden-McCarthy negotiations began to cast a shadow on Wall Street, which led to a drop in the Dow Jones Industrial Average by about 71 points, by mid-afternoon on Monday, while the S&P 500 index remained slightly higher.
For the same reason, the value of the US dollar continued to decline against the Japanese yen and the euro in Monday's trading. The dollar fell 0.15% against the yen at the beginning of the week's trading, and the euro rose by 0.14%. The US currency began to decline since the failure of negotiations on Friday, and is expected to continue in this pattern unless an agreement is reached on raising the debt ceiling.
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