The US government is touching the debt limit amid the conflict between Republicans and Democrats

By David Morgan

WASHINGTON (Reuters) – The U.S. government was set to reach its $31.4 trillion borrowing limit on Thursday, amid a battle between the Republican-controlled House of Representatives and President Joe Biden’s Democrats that could lead to a fiscal crisis within months.

Republicans, with a newly won majority in the House of Representatives, aim to use the congressionally mandated federal debt ceiling to demand cuts from Biden and the Democratic-led Senate.

Thursday’s deadline will have little immediate effect because Treasury officials are poised to begin using emergency cash management measures to stave off defaults. More serious risks will emerge closer to June, as the government approaches the so-called X-date, after which the treasury would run out of emergency maneuvers.

Before that deadline, there was no sign that either side was willing to budge.

“This is something that should be done without conditions. We should not negotiate around it. It is the fundamental duty of Congress to get it done,” White House press secretary Karine Jean-Pierre told reporters.

Republicans are instead pursuing a “debt prioritization” plan that would seek to stave off a default by calling on the Treasury Department to prioritize debt payments and possibly other priorities such as Social Security and Medicare should the limit be breached during negotiations. Republicans hope to finalize the legislation by the end of March.

The prospect of brinkmanship has raised concerns in Washington and on Wall Street about a fierce battle over the debt ceiling this year that could be at least as disruptive as the protracted battle in 2011 that led to a downgrade of the US credit rating and years of forced cuts in domestic and military spending.

“We’re not going to default on the debt. We have the ability to manage servicing and pay our interest. But we also shouldn’t blindly raise the debt ceiling,” Representative Chip Roy, a leading conservative, told Reuters.

Roy dismissed concerns about unsettling markets and risking a recession.

“That’s what they say every time. It’s like clockwork,” Roy said in an interview. “We’re already headed for a recession. The question is what that’s going to look like – unless the combination of monetary policy and fiscal policy saves us from our stupidity in having spent so much money.”

Congress passed a sweeping debt ceiling, the statutory maximum of debt the government can issue, in 1939 with the aim of limiting its growth. The measure hasn’t had that effect, since Congress has effectively handled the annual budget process—deciding how much money to spend—separately from the debt ceiling—essentially agreeing to cover the costs of previously authorized spending.

Negotiations on debt prioritization and spending are not expected to get under way until lawmakers return to Washington next week.

The Republican plan calls for balancing the federal budget in 10 years by capping discretionary spending at 2022 levels and using House oversight to identify federal programs that could be eliminated or reduced in spending bills expected to emerge from the House Appropriations Committee later on This time. year.

Meanwhile, House Republicans vow to reject sweeping government funding bills from Senate Majority Leader Chuck Schumer, similar to the $1.66 trillion bipartisan omnibus package that Congress passed late last year.

White House officials also note that Republicans in Congress supported several increases to the debt ceiling when Republican Donald Trump was president.

Congress and the White House likely have until early June to reach an agreement on government funding before Washington must confront the specter of a first-ever default, according to Treasury Secretary Janet Yellen.

“We’re optimistic that Democrats will come to the table and negotiate in good faith,” said Republican Rep. Ben Cline, who heads a conservative task force on budget and spending. “There is a lot of room for negotiation when it comes to steps that can be taken to resolve the fiscal crisis that we find ourselves in.”

(Reporting by David Morgan, additional reporting by Jeff Mason; Editing by Scott Malone and Bradley Perrett)

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