Debt ceiling worries deepen as early June US default reinforced

The Washington standoff over raising the US government’s $31.4tn borrowing limit is adding to global economic worries, as a new non-partisan congressional report has cited a “significant risk” of a historic default within the first two weeks of June, Al Jazeera reports.

The US Congressional Budget Office report, issued Friday morning, confirms Treasury Secretary Janet Yellen’s earlier warnings that a default could come as early as June 1.

“There is a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations,” the CBO warned.

Congress’ budget scorekeeper also noted that the federal government’s debt payments “will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June”.

President Joe Biden and his Democratic colleagues in Congress have urged prompt action to raise the $31.4 trillion statutory limit on government borrowing without conditions since the beginning of the year.

Republicans, who narrowly control the House of Representatives, want new limits on future spending nailed down before they give the green light on more payments to cover borrowing on previously enacted spending.

At a meeting of Group of Seven (G7) finance officials in Japan, World Bank President David Malpass said the looming risk of a default, which would be the first in US history, was adding to problems facing the slowing global economy.

“Clearly, distress in the world’s biggest economy would be negative for everyone,” Malpass told Reuters on the sidelines of the G7 meeting.

Next week, Biden is scheduled to attend a G7 leaders’ meeting in Niigata, Japan, but said this week he could cancel his trip if he and congressional leaders were not making enough progress towards a debt limit increase.

White House spokesperson Karine Jean-Pierre told reporters that the staff-level talks, which started on Tuesday, have been “productive,” though she declined to provide specifics.

“They’re going to meet today, they’re going to meet over the weekend. I think that should kind of tell you that the conversations are going in the right direction,” she added.

A meeting between Biden and Democratic and Republican congressional leaders that had been tentatively planned for Friday was postponed until sometime early next week as both sides haggle over what spending could be cut in the 2024 budget.