US debt ceiling: Biden says 'default is not an option' after meeting with McCarthy

Treasury Secretary warns of 'economic and financial catastrophe' should the US fail to address the debt limit

US President Joe Biden and US House Speaker Kevin McCarthy. AP

President Joe Biden on Tuesday said that “default is not an option” after what he called a “productive” meeting with top politicians to negotiate raising the debt ceiling, as the US lurches towards a possible default and financial calamity.

“I made clear during our meeting that default is not an option. I repeated that time and again — America is not a deadbeat nation,” he said.

Republican House Speaker Kevin McCarthy, Democratic House minority leader Hakeem Jeffries, and Chuck Schumer and Mitch McConnell, the Democratic and Republican leaders in the Senate, were present at the high-level meeting.

“Everyone in the meeting understood the risk of default,” Mr Biden said.

The President announced that he and the leaders would meet again on Friday. Teams between the White House and Congress will have daily conversations, he added.

Mr Biden and Mr McCarthy remain at odds over raising the debt ceiling.

The White House wants to raise the limit without conditions but Mr McCarthy's caucus has insisted it will not pass a deal that does not address what it calls excessive spending.

“I didn't see any new movement,” Mr McCarthy said in remarks after the meeting.

Mr McConnell said: “The United States is not going to default. It never has and it never will.”

A new report from the Bipartisan Policy Centre released on Tuesday added further urgency as it moved up its projected “X date” — the day the US will be unable to pay its bills — to as soon as early June.

“If a solution is not reached before June, policymakers may be playing daily Russian roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country,” said Shai Akabas, director of economic policy at the centre.

Even last-minute deals to avoid a default could have a negative effect on the economy, as shown by a last-ditch deal in 2011 that still led to the US economy's credit rating being downgraded.

Yet with only weeks remaining until the Treasury reaches the date, Mr Biden and Mr McCarthy appear resolute in their positions on the looming crisis.

“The exit strategy is very clear. Do your job. Congress must act to prevent a default,” White House Press Secretary Karine Jean-Pierre said.

Mr McCarthy said he did not support a short-term extension.

“Why continue to kick the can down the road?” he said when asked about pushing the deadline to September.

Mr McConnell said Mr Biden needed to negotiate with Mr McCarthy and said Democrats had yet to submit a proposal on the debt limit.

The US Chamber of Commerce put further pressure on the White House by calling for a “swift agreement” on the debt ceiling that would include permitting reform and a limit on discretionary spending.

Treasury Secretary Janet Yellen warned of “economic and financial catastrophe” should the US fail to address the debt limit. She added it would also undermine the power of the US dollar as the world's reserve currency.

Jerome Powell, Chairman of the Federal Reserve, last week said the central bank would not be able to protect the economy or the financial system in the event of a debt default.

“We shouldn't even be talking about a world in which [the US] doesn't pay its bills,” Mr Powell said.