Time crunch for debt deal heightens default fears

STORY: Since the U.S. Treasury estimated the government has until June 1 before it hits the country's debt limit -- sooner than expected -- the risk of a U.S. default has turned up the heat on Washington's lawmakers to avert an economic crisis.

"The United States is getting perilously close to a really dangerous situation."

Reuters White House Correspondent Trevor Hunnicutt says that with less than a month before that deadline, time is quickly running out to reach a deal.

"There really just isn't that many days left in the month where the president, the leaders of the House and the Senate are all in the same place. And that's going to make it very hard to get a deal done. So the very first day that the House leader, the Senate leader and the president are in town is May 9th, and they essentially have, you know, by our count, about seven working days where they're all in Washington until June 1st.

So it doesn't really leave a lot of time to get a deal done, especially since there hasn't been much movement on both sides. House Republicans are still saying that they don't want to increase the debt limit unless they're spending cuts. And Biden is still saying that he doesn't want to negotiate on spending cuts at all. He just wants a clean debt limit increase. So considering how far apart they are, it doesn't leave much time for these last minute negotiations and deals."

The last long standoff on the debt limit was when Republicans controlled the House during Barack Obama's administration. That ultimately led to a historic downgrade of the nation's credit rating, which raised borrowing costs and hammered markets… But averted a default.

"What we are seeing right now is that a lot of the people who are involved in these negotiations are some of the same people who were around in 2011 and 2013. Joe Biden was vice president the last time we had a debt ceiling fight. Kevin McCarthy was in the House leadership under John Boehner the last time we had this fight. And so both of them kind of took two different lessons away from it. You know, for Joe Biden, his lesson was don't negotiate at all because that, you know, that created its own turmoil. But that also puts us in a position where, you know, it's a higher hurdle for him to come to some kind of an agreement with McCarthy, because he's already said from day one, I'm not going to negotiate. And I think for Kevin McCarthy, I think the lesson that he and the Republican leadership took away from this was two things, really. One, it's really hard to keep your caucus in line. And two, you're going to have to give them something. And you have to give them some sense that they used this leverage and got something out of it and that that's something that they can take home to their voters."

Some legal experts have said that Biden has another option to avert a crisis: Invoke the 14th Amendment, which includes a clause adopted after the Civil War, stating that the "validity of the public debt of the United States ... shall not be questioned."

But Hunnicutt says the White House, not to mention financial markets, foresee issues with that proposal.

"The negotiations have gotten so complex that a lot of people in Washington are talking about, kind of, magic wand options, right? Like the idea that the president could just say, you know what, it's unconstitutional. Look at the 14th Amendment. We have to pay our bills. We're just going to go ahead and do it. Or, you know, there's talk about minting a certain coin. The problem is that with some of these things that have never been tried, just the mechanics of actually doing it would be very difficult to kind of sell that to the markets and it would be very difficult to sell to the White House. The idea that they should take a novel legal theory about the debt limit to the Senate, to a Supreme Court that's been, you know, pretty hostile to some of their novel ideas thus far. So I you know, the sense that I get from talking to the White House, at least, is that there really isn't a magic solution here. We can debate it, we can think about it. We can try and find a way out of this. But the only way out of this is to have a conversation where it comes back to the lawmakers, where they have to figure out a way that they can settle their differences here."

If legislation isn't passed by both the Republican House and Democratic Senate and on the president's desk for his signature in time, it would mark the first default caused by a policy choice in U.S. history.