The Washington standoff over raising the debt ceiling has raised economic concerns on a global basis. Treasury Secretary Janet Yellen again warned on Monday that a U.S. default could come as early as June 1st. Her dire warning is also confirmed by projections of both the Bipartisan Policy Center and the Congressional Budget Office.
A nonpartisan congressional report cited a “significant risk” of a historic default within the first two weeks of June. A report by the U.S. Congressional Budget Office confirmed statements by Treasury Secretary Janet Yellen’s warning that a government default could come as early as June 1. Then there is also Biden’s veiled threat of using the 14th amendment if no agreement is forthcoming before June 1.
President Biden announced his plans to cut short his upcoming trip to Asia. Although he will still attend the G7 meeting in Japan he will return immediately after that rather than going to Papa New Guinea and Australia. This could be the root cause of the upbeat and optimistic tone and statements that occurred immediately following the conclusion of the second debt ceiling meeting by all sides.
Speaker Kevin McCarthy said both sides are still "far apart," but he believes “it's possible to get a deal this week.” There was an overwhelming consensus that letting the U.S. government default on its obligations was not an option. Which also opens the door for a two-part agreement. The first part being some sort of short-term extension followed by more extensive negotiations being held at a later date.
One piece of fresh news came with the acknowledgment that the only way to resolve the debt ceiling crisis was through bipartisan negotiation to create legislation rather than partisan bills such as the one passed by Congress a few weeks ago. Shortly after the one-hour meeting, House Speaker Kevin McCarthy spoke to reporters stating that both he and the president have agreed to designate people to represent the White House in direct negotiations with his team.
Senate Majority Leader Chuck Schumer added to that sentiment saying that, “a few additional players” will be added to the discussions. The White House later announced that the President will have two of his top advisers negotiate the debt deal with Capitol Hill Republicans.
It is what was not said that seems to be at the heart of this newfound optimism which is that there was some discussion of a short-term extension to avoid the U.S. defaulting on its obligations. While this is only a conjecture the fact that the ideology of the Republicans and Democrats remain so far apart that the only way to get an agreement by the end of the week would involve some sort of two-part negotiations consisting of short-term solutions which would be followed by a more detailed negotiation at a later date.
As of 6:00 PM EDT Gold futures basis the most active June contract is currently fixed at $1993.20 after factoring in today’s decline of $29.4 or 1.46%. The U.S. dollar index is currently trading at 102.44.
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