Potential for first-ever US default looms over Tuesday debt ceiling meeting

WASHINGTON (TND) — Five of the most powerful people in Washington only have about three weeks to reach an agreement on how to raise the debt ceiling and avoid an economic catastrophe.

On Tuesday afternoon, House Speaker Kevin McCarthy, House Minority Leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer and Senate Minority leader Mitch McConnell will meet with President Joe Biden in the Oval Office to discuss the debt. It will be the first bipartisan meeting on the issue since McCarthy and Biden met in February.

Since then, the Treasury Department's estimate of an "X-date" for default has been moved up to June 1 and House Republicans have passed legislation for a debt ceiling increase tied to trillions in federal spending cuts. The two sides haven't budged from their positions: Democrats insist on a clean debt limit increase and Republicans won't support anything that doesn't include spending cuts– over the weekend 43 Republican senators signed a letter to Schumer saying they won't vote for cloture "on any bill that raises the debt ceiling without substantive spending and budget reforms."

During Monday's briefing, Press Secretary Karine Jean-Pierre said she wouldn't describe Tuesday's meeting as "negotiations."

I would call it a conversation between the four leaders and the president," Jean-Pierre said.

The two sides do agree, however, on the cost of inaction.

House Budget Committee Chairman Rep. Jodey Arrington, R-Texas, told Fox News a sovereign debt crisis would "undermine everything from our economy to our security to our children’s future in this country.

In an interview with MSNBC, Biden noted a default would cause a recession.

"It would be a disaster," he said.

The White House has said the president would be willing to discuss spending cuts after and separate from a debt ceiling increase.

The proper time to have a conversation about next year’s spending, about how many cuts there should be or should not be is a part of the normal budget and appropriations process. The president has said time and again that he looks forward to having that conversation and that negotiation about next year’s budget but that we need to keep that separate from the bills we have already incurred," said Heather Boushey, a member of the White House Council of Economic Advisers.

According to simulations by Moody's Analytics, a default lasting a matter of weeks would trigger fallout similar to the 2008 global financial crisis: GDP would shrink, unemployment would spike and a Wall Street sell-off could send stock prices plummeting by one-third, wiping out $12 trillion in household wealth.

“We need to end this drama as quickly as possible." Moody's chief economist Mark Zandi told the Senate Budget Committee last week. "If we don’t, we’re going to go into recession and our fiscal challenges will be made even worse."