What to know about showdown in Washington as default looms

House Speaker Kevin McCarthy, D-Calif., said Friday that negotiators are working to “finish the job” and strike a deal before the U.S. runs out of money to pay the bills. Republicans worked through the night with the White House to find a deal on spending cuts that GOP lawmakers demanded in exchange for raising the debt limit.

McCarthy said he did not know if the details would be finalized in the next 24 hours.

“I thought we made progress yesterday,” he said. – Today I want to make progress again. And I want to be able to solve this problem.”

Treasury Secretary Janet Yellen stated that the country may run out of money by June 1. A default could potentially devastate the US economy and the global economy, depending on how long the standoff lasts.

A look at the talks and why they’re happening:

WHAT IS A DEBT CALL FIGHT?

A vote to raise the debt ceiling, which has been a regular business of Congress, allows the Treasury Department to continue borrowing money to pay the nation’s already-debt bills.

The debt limit vote has recently been used as a political leverage point, a must-pass bill that can be loaded with other priorities.

House Republicans, who recently won a majority in this Congress, refuse to raise the legal limit unless Biden and Democrats impose cuts in federal spending and caps on future spending.

Republicans say the national debt, now at $31 trillion, is unsustainable. They also want to push other priorities, including tougher work requirements for recipients of public assistance, food stamps and Medicaid. Democrats oppose these demands.

Biden insisted on approving the debt ceiling without any strings attached, saying the US always pays its bills and a debt default is non-negotiable. But he began negotiations after House Republicans passed their own legislation and made it clear they would not accept a net increase in the debt ceiling.

WHAT WILL HAPPEN IF THE CAPACITY CEIL IS NOT RAISED?

There’s really no plan for what’s going to happen. But the first ever government default will threaten the economy. Yellen and economic experts said it could be “disastrous.”

on wednesday night rating agency Fitch put the nation’s credit on “Watch Negative,” a warning that it could downgrade U.S. credit as a result of the impasse.

If ratings agencies like Fitch did downgrade America’s debt, it would mean Washington would have to pay higher interest rates on Treasuries, notes and bills.

According to estimates of the White House, the reason may be a prolonged default Loss of 8.3 million jobs and a global recession, while even a short default could result in 500,000 fewer jobs. Moody’s Analytics estimated that a default of no more than a week would result in the loss of 1.5 million jobs.

The consequences would be far-reaching. Mark Zandi, chief economist at Moody’s Analytics, said that “no corner of the global economy will be spared.”

Yellen said federal government payments to millions of families “will likely remain unpaid,” including Social Security recipients, veterans and military families. Government disruptions would also affect “air traffic control and law enforcement, border security and national defense, and food safety.”

Bipartisan negotiators regularly report on “progress.” But the week-long negotiations have not yet led to a deal.

The two sides are considering a deal that would raise the debt ceiling for two years — until the next presidential election — cut spending through 2024 and impose a 1% spending growth cap through 2025.

They argued about how to reduce the annual budget deficit. Republicans are determined to cut spending; Biden’s team is in favor of maintaining the level of spending.

“It really comes down to one thing, it was about costs,” McCarthy said Friday morning.

But reaching a negotiated agreement is only part of the task. Any deal would also have to pass the Republican-led House of Representatives and the Democratic-majority Senate, with significant bipartisan support. In the end, the leaders of both parties will have to make it to the finish line.

Democrats are adamantly opposed to Republicans’ drive to tighten job requirements on people who receive public assistance through food stamps, Medicaid, and cash assistance programs.

Biden has kept the door open to discussing job demands, but that’s not enough for House Republicans.

“It’s quite clear that this is a huge sticking point for the White House,” Rep. Patrick McHenry of North Carolina, one of McCarthy’s negotiators, said earlier this week. – They did not hesitate with the requirements for work.”

Republicans have long pushed for higher requirements for federal aid, even though some already exist. Democrats have successfully fought previous efforts, but McCarthy said there will be no deal this time unless Democrats agree to changes.

Other policy priorities are under consideration, including steps to improve the electric grid and speed up permitting for construction and development of energy projects. While members of both parties support these ideas, Republicans and Democrats have not always agreed on how to address the issue.

McHenry said Friday that the talks are going “one little step at a time” and that “not an hour goes by” without Republicans talking to the White House.

“There is forward progress, but every time there is forward progress, the challenges that remain become more complex and complex,” McHenry said.

CAN THEY DO IT THEIR OWN?

As each day passes without a deal, the deadlines are narrowing.

The Treasury says it will run out of money as soon as June 1. Yellen said Wednesday that it was “almost certain” that the U.S. would default by early June if nothing was done.

It is difficult to determine the exact date when the government will start skipping payments because tax revenues and expenditures vary from day to day.

McCarthy has promised to give lawmakers 72 hours to consider any proposed deal before it comes up for a vote, so the House could vote for now as soon as early next week. Lawmakers are out of town until Tuesday, though McCarthy may call them back from recess.

After passing the House, the bill will go to the Senate, where Majority Leader Chuck Schumer, D-N.Y., said it could be passed more quickly.

So the time has come. And before the legislative text can be considered, it needs to be written, which won’t happen until a deal is struck.

IS THERE A BACKUP PLAN IF THE NEGOTIATIONS GO ON?

Democrats have called on Biden to raise the debt ceiling on his own, without help from Republicans.

Progressives want Biden to enforce the clause in the Constitution 14th Amendment which states that the validity of the national debt in the United States “should not be questioned.” The default, it is argued, is therefore unconstitutional.

The president resisted this option, which raises legal issues. He says it is “a question that I consider unresolved” as to whether he could have acted alone.

Meanwhile, in Congress, House Democratic leader Hakeem Jeffries has set in motion a process that would “move” the debt ceiling issue to the House floor, forcing a vote to raise the limit. But it does not have the support of Republicans.

Associated Press writers Colin Long, Steven Groves and Farnoosh Amiri contributed to this report.