US debt crisis: Joe Biden got the deal done, but at a cost

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Joe Biden tried to make the most of a financial truce he negotiated with Republican House Speaker Kevin McCarthy late Saturday, aimed at preventing a devastating US debt default in little more than a week.

“The agreement represents a compromise, which means that not everyone gets what they want,” said the US president. “This is the responsibility of the referee.”

While the agreement will bolster Biden’s reputation as a bipartisan deal-maker, it does come at a cost. For months, he called on Congress to raise the country’s $31.4 trillion borrowing limit without a fight, only to be drawn into frantic budget negotiations in Washington that forced him to cut short a trip to Asia.

Many Democrats — especially those on the far left — have become increasingly unhappy with the terms of the deal as it consolidated this week, worried that it was making too many concessions.

“I think the White House is trying to do a good job and the president’s heart is certainly in the right place,” Sheldon Whitehouse, the Rhode Island Democratic senator, told the Financial Times ahead of the deal. “The question is, when you’re negotiating with a fanatic who has a grenade, the situation can get very risky.”

The agreement was concluded in a phone call Saturday night between McCarthy and Biden. The Republican House speaker announced it to Biden, shortly after 9 p.m., with a cut-out tweet. “I just got off the phone with the president,” McCarthy wrote. “After he wasted time and refused to negotiate for months, we came to an agreement in principle worthy of the American people.”

Biden was able to score some political gains along with conceding some defeats in the convention. Republicans had proposed an increase in the debt limit for one year, with spending limits for a decade. In the end, Biden got an increase in the borrowing limit until after the next presidential election. Non-defense spending will be roughly flat in fiscal 2024 and then rise by 1 percent the following year. Biden’s defense budget request will remain the same.

As details of the deal emerged this week, Mark Zandi, chief economist at Moody’s Analytics, said it wouldn’t deal a huge blow to the economy. “We estimate it will reduce employment by just over 120,000 at peak impact in late 2024,” Zandi said.

“This is not the best time for fiscal restraint as the economy is fragile and recession risks are high, but it is manageable.”

Finalizing the agreement with McCarthy required a leap of faith on Biden’s part that the Republican speaker would be able to provide the support needed to pass the bill when it came to a vote in the House, likely on Wednesday.

While other House Republican leaders along with party moderates are likely to embrace the deal, the biggest threat comes from angry conservatives who believe McCarthy has softened their initial proposal too much. “I don’t like the ‘deal’ as I understand it from cheerleading so far,” Chip Roy, the Texas House Republican, wrote on Twitter Saturday night.

Ken Buck, a Colorado Republican, said he was “appalled that the debt ceiling was waived.”

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“The bottom line is, the United States will have $35 trillion in debt in January 2025. This is totally unacceptable,” Buck wrote on Twitter.

McCarthy will almost certainly require Democratic votes to pass the deal through the House, given that he has a very small majority. This will require Biden to play a major role in the coming days to cross the line.

Some Democrats have been unhappy with Biden’s handling of the crisis at a time when the left wing of the party is already upset about what they see as his concessions on immigration and energy policy.

In addition to the spending restrictions, Democrats broke out in arms at the addition of new eligibility restrictions for social safety net programs, especially food aid. Although Biden was able to limit the changes and secure a cut for the homeless and veterans, progressive groups saw it as a damaging concession.

The deal represents the worst of conservative budget ideology; It cuts investments in workers and families, adds onerous and wasteful new hurdles for families in need of support, and shields richer Americans and big corporations from paying their fair share in taxes, said Lindsay Owens, CEO of Groundwork Collaborative, left. Lean economic thinking.

But an alternative to a deal was out of the question for Biden. If the package is rejected by Congress, it could plunge financial markets into chaos, threaten a robust labor market and deal a major blow to US economic leadership around the world.

Biden may not be strong enough politically to withstand such a blow. In past financial confrontations, Democratic administrations have successfully portrayed Republicans as financial extremists. But mixed polls in recent weeks suggest that Biden does not have a clear advantage this time around.

“If there’s a recession as a result of this, the president will get a lot of blame, and so will the Republicans,” said Jay Campbell, a pollster at Hart Research. “What happens politically at that point is really anyone’s guess.”

Biden has come under pressure from his party to ignore the debt ceiling and continue to borrow on constitutional grounds by invoking the Fourteenth Amendment, which says the validity of American debt is “not to be questioned.”

But his administration insisted that such a unilateral solution – and other alternatives – would be impractical and legally risky. Regardless, some pundits have suggested that Biden should have been more aggressive with Republicans to force McCarthy out.

Biden has spoken softly about the financial negotiations in recent days, far less so than McCarthy and the Republican negotiators, which helped limit any hostility in the last stretch. A more confrontational stance would have gone against Biden’s nature and hurt the prospects for a deal.

Biden’s normal life [and] “No drama,” said a senior Democratic strategist, “this is the gestalt of management.”

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