Why have the Republican and Democratic parties still failed to reach an agreement on raising the debt ceiling or cutting spending, despite two walkouts by Republican negotiators during U.S. debt-ceiling talks? What is the 'real disagreement'?

At the end of last month, U.S. Treasury Secretary Janet Yellen stated that if Congress fails to raise the debt ceiling again before June, the United States could breach its debt ceiling as early as June 1—triggering a sovereign debt default. With the deadline now just days away, the situation is becoming critical. A debt default means the U.S. government would be unable even to pay interest on its outstanding debt—essentially telling creditors: “We cannot repay the money we borrowed.” That would amount to national bankruptcy and a collapse of the U.S. dollar. The U.S. government is clearly alarmed—and has resorted once again to invoking China in its push to raise the debt ceiling, repeatedly attempting to tie the issue to China. Earlier this month, U.S. media reported that Jared Bernstein, Chair of the White House Council of Economic Advisers, claimed there is evidence suggesting China hopes to weaken the U.S. dollar’s reserve-currency status—and therefore, Congress must raise the debt ceiling to safeguard the dollar’s value. See how this politician circles all the way around only to arrive at one ultimate goal: persuading Congress to raise the debt ceiling. Yet it is indeed true that the dollar’s global standing is gradually weakening. On the surface, this stems from Washington’s use of the dollar as a weapon—especially its sanctions against Russia—which has triggered deep concerns among other countries about the weaponization of the dollar. In short, while raising the debt ceiling may temporarily shore up the dollar’s status, it simultaneously erodes the U.S.’s debt-servicing capacity and shrinks the room for monetary policy maneuvering. Conversely, failing to raise the ceiling risks outright default—further damaging America’s credibility. In the long run, regardless of which path the U.S. chooses, both options amount to drinking poison to quench thirst—neither can easily reverse the historic global trend toward de-dollarization and the adoption of local-currency settlements. In response, Yellen—representing President Biden—proposed raising the debt ceiling to $51 trillion outright. That would instantly give President Biden access to nearly $20 trillion in additional borrowing authority—leaving him free to spend as he sees fit. But House Speaker Kevin McCarthy, representing the Republican Party, rejected the proposal. His stated rationale: such a massive increase would likely push U.S. Treasury yields above 10%; with $51 trillion in debt, annual interest payments alone would exceed $500 billion—a sum no one could realistically afford. His unstated motive, however, is political: as the opposition party, Republicans see this crisis as a rare opportunity to undermine the administration. So McCarthy countered with his own plan: raising the debt ceiling to $32.9 trillion—allowing Biden to issue an additional $1.5 trillion in Treasury debt. Why $1.5 trillion? McCarthy has already calculated that this amount—combined with projected tax revenues over the coming months—will just barely cover the federal government’s payroll, interest payments on existing debt, Medicare obligations, and military salaries. All other expenditures would be zeroed out. By the time of the 2024 U.S. presidential election, the money will be completely exhausted.

Fosun Wealth Morning Brief | McCarthy: A debt deal must be reached this week; global commodity prices may decline

Highlights 1. U.S. House Speaker Kevin McCarthy: A debt agreement must be reached this week to avert default. 2. World Bank report: Global commodity prices are expected to decline. 3. U.S. Department of the Treasury report: Investors have increased purchases across all maturities of U.S. Treasuries. 4. Meta receives record fine for transferring EU users’ data to the U.S. 5. Intel outlines its outlook for the “AI chip race.” Stock Markets 1. Amid uncertainty over the debt ceiling negotiations, U.S. equity markets traded sideways on Monday, with technology stocks slightly outperforming the broader market. At closing, the S&P 500 rose 0.02% to 4,192.63; the Nasdaq Composite gained 0.5% to 12,720.78; and the Dow Jones Industrial Average fell 0.42% to 33,286.58. 2. Among the 11 sectors of the S&P 500, most posted modest gains or losses. Communication Services (+1.17%) and Real Estate (+0.67%) led the gains, while Consumer Staples (-1.47%) posted the steepest decline. 3. Major tech-weighted stocks mostly rose: Apple fell 0.55%, Microsoft rose 0.89%, Amazon dropped 1.07%, Meta gained 1.09%, Alphabet (Google-A) rose 1.87%, Tesla surged 4.85%, NVIDIA declined 0.28%, Intel rose 1.17%, and Micron Technology—whose chips failed China’s cybersecurity review—fell 2.85%. 4. Most Chinese-American stocks also advanced: the Nasdaq Golden Dragon China Index rose 2.06%. Individual stocks included Alibaba (+2.52%), Tencent ADR (+2.42%), Baidu (+1.34%), Pinduoduo (+4.15%), JD.com (+2.65%), NetEase (+1.26%), and NIO (+8.92%). Macroeconomic Developments 1. U.S. House Speaker Kevin McCarthy stated that the two parties must reach a debt-ceiling agreement this week to avoid a catastrophic U.S. default—potentially as early as June 1. McCarthy described Monday morning’s negotiations with White House representatives as “productive.” Speaking to reporters at the Capitol on Monday afternoon, he said: “We could reach an agreement tonight—or tomorrow.” Even while expressing optimism, however, he emphasized that no agreement had yet been finalized. President Biden and Speaker McCarthy are scheduled to hold face-to-face talks at the White House at 5:30 p.m. ET (5:30 a.m. Beijing time). McCarthy added that, with time running critically short, “decisions must begin now.” 2. According to the World Bank’s recently released Commodity Markets Outlook report, global commodity prices are expected to decline—projected to fall at the fastest pace since the onset of the COVID-19 pandemic. Overall, commodity prices in 2023 are forecast to drop 21% year-on-year. Energy prices are expected to decline 26% this year. Although food prices are projected to fall 8% in 2023, they will remain the second-highest since 1975. In real terms, current food prices are among the highest in the past 50 years. Despite the anticipated price declines across commodity categories this year, prices will still remain above their 2015–2019 average levels. 3. The U.S. Department of the Treasury reported that, in the latest two-week reporting period, investment funds purchased $23.381 billion worth of 10-year Treasury notes maturing on May 15, 2033—up from $21.75 billion the previous month. Foreign investors purchased $6.076 billion of these 10-year notes, compared to just $3.75 billion the prior month.

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