Biden to cut short Asia tour as debt-ceiling talks enter crunch time

US House Speaker Kevin McCarthy says sides are still far apart in agreeing on deal to avoid a default

What is the US debt ceiling?

What is the US debt ceiling?
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President Joe Biden will cancel part of his coming trip to Asia to focus on debt ceiling talks in a sign that negotiations to raise the limit are entering crunch time.

After a meeting with Mr Biden on Tuesday, Republican House Speaker Kevin McCarthy said the two sides remain a way apart, although a deal could theoretically be reached by the end of the week.

"It is possible to get a deal by the end of the week," Mr McCarthy told reporters.

"We've got a lot of work to do in a short amount of time."

The White House said the meeting was "productive and direct" and that Mr Biden remained optimistic that there w a pathway to agree on a bipartisan deal "if both sides negotiate in good faith".

The meeting inside the Oval Office ended with Mr Biden agreeing to choose a person to negotiate with the Republican leaders.

"The structure of how we negotiate has improved," Mr McCarthy said, blaming Mr Biden for not appointing someone sooner, although he noted Tuesday's talks set the stage for future meetings.

Democratic Senate majority leader Chuck Schumer told reporters after the meeting that "default is the worst, worst alternative".

"Default is a disaster. Full stop," Mr Schumer said.

The meeting comes a day before Mr Biden's planned trip to Asia, which has now been cut short in a clear sign that there is still considerable distance between the White House and Republican legislators.

US House Speaker Kevin McCarthy and Senate Minority Leader Mitch McConnell speak to reporters outside the White House following debt-ceiling talks with President Joe Biden. Reuters

Mr Biden will attend a G7 summit in Japan this week before returning to the US on Sunday, the White House said. The new schedule cancels planned visits to Papua New Guinea and Australia.

He is hoping to speak with the leaders this week by phone and will meet them when he returns from his trip abroad, the White House said.

"We wouldn’t even be having this discussion about the effect of the debt-ceiling debate on the trip if Congress would do its job, raise the debt ceiling the way they’ve always done,” National Security Council spokesman John Kirby said.

The White House has maintained that it wants to raise the debt limit without conditions. A proposal passed by the Republican-controlled House of Representatives includes spending cuts and is not expected to advance in the Democrat-held Senate.

But “time is running” out and the cost of inaction could damage the US economy.

US Treasury Secretary Janet Yellen had earlier warned that time was running out to strike a deal on the debt ceiling. The Treasury could run out of money to pay its bills as early as June 1, she said.

“We are already seeing the impacts of brinkmanship: investors have become more reluctant to hold government debt that matures in early June,” Ms Yellen told the Independent Community Bankers of America conference.

US Treasury Secretary Janet Yellen said 'time is running out' to find a deal on raising the debt ceiling. Bloomberg

“Generations of Americans have protected the full faith and credit of the United States. That has been a bedrock of our global economic leadership.

“There is no good reason to squander that reputation now, and to trigger a manufactured crisis of our own creation.”

Mr Biden expressed some optimism at the weekend that he and Mr McCarthy would be able to reach an agreement.

But the Speaker was less certain that substantial progress had been made before the X-Date, the day on which the US runs out of money.

“We're only a couple weeks away, and if you look at the timeline to pass something in the House and pass something in the Senate, you've got to have something done by this weekend – and we are nowhere near any of that,” Mr McCarthy said.

A debt default would be catastrophic for the US economy, plunging it into a recession and leaving millions unemployed.

The US credit rating would also probably take a hit and the strength of the dollar would be cast into doubt as the world's reserve currency.

White House estimations also project that the stock market would drop 45 per cent, which could also cause significant harm to other financial markets.

“If that sounds catastrophic, that’s because it is,” Ms Yellen said.

Updated: May 16, 2023, 8:59 PM