NEW YORK, May 26 (Reuters Breakingviews) – The threat of a U.S. default isn’t the only thing bringing lawmakers to the negotiating table. After months of bickering, posturing and instability, Democrats and Republicans edged closer on Friday to a deal that would keep the world’s largest economy from defaulting on its debt — just before the holiday that marks the start of summer. That unofficial deadline adds urgency, and also makes it likely that the deal will be no better than good enough.
As of Friday morning, US President Joe Biden and Republican Rep. Kevin McCarthy were working on an agreement to reduce the growing deficit. But lawmakers are also leaving Washington ahead of Memorial Day, the American holiday that marks the start of the warmer months. Each agreement should be vetted for 72 hours and then voted on. And there are only two days left after the long weekend until June 1, after which the Ministry of Finance warned that it cannot guarantee that its obligations will be paid.
The agreement, as reported by Reuters, would raise the debt ceiling by two years, until the 2024 presidential election, but will leave much unsettled. If the political landscape changes by then, everything will pass. The fine print on things like non-defense spending, including child care, cancer research and limits on food assistance programs, could still change, while discussions about tax increases appear to have been sidelined. Factions among both Democrats and Republicans in Congress, who have yet to vote on the deal, complained that both were giving up too much.
Investors seem optimistic. The cost of insuring exposure to government debt has fallen in the past few days as a deal nears and the S&P 500 index (.SPKS) is rising. But any deal is unlikely to fix the fact that the US government is spending too much money, and any new administration has an incentive to throw restraint to the wind. In two years, the debt picture could look worse. Meanwhile, the banking crisis, the inflation crisis and the potential economic crisis have been put on the back burner.
Investors will come back from a weekend of burgers and beers and see stability, which means they will be willing to take risks again. US lawmakers will come back still drunk on dysfunction.
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CONTEXT OF THE NEWS
The White House and congressional Republicans on Friday aim to finalize a deal to raise the U.S. government’s debt ceiling by $31.4 trillion over two years while limiting spending on everything except the military and veterans, Reuters reported, citing to an American official.
Editing by John Foley and Sharon Lam
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