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U.S. will not default, but Republicans won't be to blame if it does, McCarthy says

Speaker of the House Kevin McCarthy, R-Calif., speaks to reporters at the Capitol in Washington, Wednesday, May 24, 2023. THE CANADIAN PRESS/ AP/J. Scott Applewhite

WASHINGTON — The United States won't go into default on its debt, House Speaker Kevin McCarthy predicted Wednesday — but the highest-ranking Republican on Capitol Hill also said it won't be his fault if it does.

The double-barrelled message from the Speaker of the House of Representatives, whose caucus is locked in a spending standoff with the White House, came amid the ongoing, ominous countdown to the so-called "X-date." 

That's when Treasury Secretary Janet Yellen says the U.S. government will run out of the money it needs to pay all of its bills without Congress agreeing to raise the debt ceiling — a day which could come as soon as June 1. 

"I don't think there'll be a default, and I don't see how you would blame Republicans," McCarthy told a news conference on Capitol Hill. 

Democrats, he said, have done nothing to prevent the standoff, even since February when McCarthy first indicated he wanted to see spending cuts before the GOP-controlled House would agree to raise the limit. 

"They told us we shouldn't talk. So, I'm sorry: if you want to blame Republicans for solving problems, we'll take that blame." 

Democrats, particularly from the party's progressive wing, were livid. 

"We are not 'tanking' anything," said Rep. Pramila Jayapal (D-Wash.), noting that Republicans have every opportunity during the appropriations process to negotiate on behalf of their priorities. 

"Republicans agree, Democrats agree, we decide — we appropriate money based on what Congress has passed, legislation that we pass in this body. That is democracy." 

The House has already passed a bill that contains the spending cuts and caps Republicans want to see in exchange for raising the debt ceiling, legislation that has no chance of getting through the Senate. 

Rep. Ilhan Omar (D-Minn.) accused McCarthy of introducing that bill solely to give him leverage over the White House. 

"Many Republicans, if this was a real bill, would not have voted for it," she said. "So many Republicans would not be able to go back to their districts if this bill that they passed out of the House became law."  

Congressional negotiators were meeting with their counterparts at the White House in an effort to resolve the impasse, although there was no word Wednesday whether McCarthy would sit down again with President Joe Biden. 

"The president and the Speaker will speak when the time is right, when the time is necessary," said White House press secretary Karine Jean-Pierre. 

"We're going to give the negotiators some time to have a conversation, to continue to negotiate. We believe the talks are moving in a productive way."

Experts say a U.S. default, even for a short time, would have deep and wide-ranging economic repercussions across the continent and around the world. And Canada would have no place to hide. 

A default would trigger "pretty much an immediate recession" in the U.S., said Cristián Bravo Roman, an expert in banking and insurance analytics at Western University in London, Ont. 

"Historically, around three-quarters of the Canadian economy is correlated with the U.S. economy, so that should be enough — or very close to enough — to throw the Canadian economy into recession as well."

If the U.S. is suddenly forced to pay higher interest rates to service its monumental debt, taxes would have to go up in the longer term, leaving less disposable income to spend on consumer goods from both sides of the border, he added.

"In the short term and in the long term, all of this is bad for us, for Canadians," Bravo Roman said. 

"The question is, how bad is it? And that's the thing that will depend on the specifics of how this occurs." 

The Dow Jones industrial average was significantly lower Wednesday and took little comfort from McCarthy's news conference, shedding about 100 points just prior to his comments before ending the day about 255 points lower. 

McCarthy has been saying since February that Republicans won't agree to raise the debt ceiling without spending cuts — specifically, he wants the White House to roll back its spending levels to where they were in fiscal 2022, a reduction in discretionary spending of about $3.6 trillion.

In the U.S., discretionary programs cover a wide range of government priorities, including defence, education, housing, environmental protection and a range of public health measures and medical research. 

Nor will Republicans agree to tax increases, McCarthy said. 

"We've got more revenue coming into our coffers than at any time in American history. The problem is the Democrats had been in power, and they increased the amount of spending to the highest level we've ever had, at any time in American history," he said. 

"I just think it's common sense, it's reasonable and it's rational that we spend less next year than we spend this year."

Yellen wrote to congressional leaders Monday to call it "highly likely" the U.S. would no longer be able to pay all of its bills by early June and "potentially as early as June 1."

There will be consequences before then, she added, saying Treasury's borrowing costs for securities maturing in early June have already gone up, and that waiting until the last minute "can cause serious harm" to business and consumer confidence. 

"If Congress fails to increase the debt limit," Yellen wrote, "it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests." 

A number of House GOP members, particularly those the White House likes to describe as "extreme MAGA Republicans," have started expressing skepticism about Yellen's warnings. 

"I don’t believe that the first of the month is a real deadline," Rep. Matt Gaetz (R-Fla.) told CNN on Tuesday. "I don’t understand why we’re not making Janet Yellen show her work."

Gaetz also said Republicans don't have to "negotiate with our hostage," a turn of phrase the White House seized on as evidence of bad faith. 

"They're saying the quiet thing out loud," Jean-Pierre said.

"This is a manufactured crisis, plain and simple. That's what we're seeing currently, and that's what we've been dealing with for the past couple of weeks: a manufactured crisis." 

This report by The Canadian Press was first published May 24, 2023.

James McCarten, The Canadian Press

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