'Debt Ceiling' Empty-Handed Biden and McCarthy... Early June Default Warning (Comprehensive Report 2)

No Breakthrough Despite Emergency Meeting
Biden: "Default Is Not an Option"
McCarthy Denies Plans for 3-Month Temporary Suspension Agreement
Market Uncertainty Amidst Party Standoff... Short-Term Treasury Yield Surges to 5.53%

[Image source=AP Yonhap News]

U.S. President Joe Biden and House Speaker Kevin McCarthy held a sudden meeting over the issue of raising the federal government's debt ceiling but failed to find a breakthrough. Amid this situation, warnings have resurfaced that a default could occur as early as early June. As tensions between the ruling and opposition parties escalate, short-term Treasury yields have soared.

According to the Wall Street Journal (WSJ), President Biden met with Republican Speaker McCarthy and other congressional leaders from both parties for about an hour starting at 4 p.m. local time on the 9th to discuss the debt ceiling, but the meeting ended without significant progress. Biden and congressional leaders are scheduled to meet again around the 12th.

At a press conference that day, President Biden described the meeting as "constructive," but emphasized, "Default is not an option. I told congressional leaders that I am ready to have separate discussions on budget and spending priorities, but it should not be under the threat of default." Speaker McCarthy said, "Everyone in the meeting reiterated their existing positions," and local media reported that "no new movement was seen."

Before the negotiations, Speaker McCarthy dismissed the prospect of a three-month temporary suspension to avoid default, saying, "There is no plan to agree on that." The White House also drew a line, stating that a temporary suspension is not part of the government's plan. The U.S. exhausted its $31.4 trillion debt ceiling in January and is currently relying on extraordinary measures.

Experts note that the debt ceiling standoff is occurring at a time when the economy is vulnerable due to the Federal Reserve's aggressive tightening. If a default occurs, it is expected to cause millions of job losses and financial market turmoil. Earlier this month, the White House Council of Economic Advisers released a scenario estimating that if the default lasts more than three months, the stock market could plunge 45%, and up to 8.3 million jobs could be lost.

In this context, the bipartisan think tank Bipartisan Policy Center (BPC) predicted the so-called X-day?when the federal government runs out of cash and cannot pay its debts?will occur between early June and early August. Previously, in February, the estimate was summer to early fall, but the timeline has been moved up. This is similar to the June 1 X-day forecast recently made by U.S. Treasury Secretary Janet Yellen. Shai Akabas, director of economic policy at BPC, warned, "If a solution is not found before next month, policymakers will be playing a daily game of 'Russian roulette' with the nation's credit, pushing voters and the country toward a financial disaster."

Market anxiety has increased. On the afternoon of the same day, the yield on Treasury securities maturing on June 6 surged to 5.53%. Before Secretary Yellen presented the June 1 X-day, the yield was around 4.85%. WSJ evaluated, "This rise in Treasury yields has become a typical feature during debt ceiling standoffs over the past decade." Investors are reluctant to hold short-term Treasuries, leading to continued selling. Dow Jones reported, "Short-term Treasury yields are rising amid concerns over the worst-case scenario of default."

Some analysts suggest that the Biden administration may ultimately take emergency measures to raise the debt ceiling without congressional approval based on the 14th Amendment. For President Biden, who has officially declared his re-election bid, whether a default occurs could become a significant variable in the future presidential race.

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