Differences between Democrats and Republicans over the U.S. federal borrowing limit remain deep, Treasury Secretary Janet Yellen said Monday, urging the need to find a “compromise” ahead of a White House meeting between the president today. Joe Biden and Republican leaders in Congress.

“Obviously, the distance between the position of the president and the Republicans is huge,” Mr. Biden’s economy and finance minister said in a speech on CNBC.

However, despite the differences, “we need to discuss and reach a compromise on fiscal policy, overall spending and the objectives of these spending,” he continued.

This should be done in the context of “smooth fiscal processes, and the President hopes there will be a process of dialogue and compromise on these issues,” Ms. Yellen added.

However, he stressed that Mr. Biden is “unwilling” to compromise “with a gun to his head, much less (…) to the temple of the American people,” referring to Republican pressure to cut government spending sharply.

The US President will host Democrat and Republican leaders at the White House today to negotiate an increase in the federal government’s debt limit and thereby avoid a catastrophic and unprecedented US default scenario.

They are Speaker of the House Kevin McCarthy, Republican House Democratic Leader Hakim Jeffreys, Senate Majority Leader Chuck Schumer and House Republican Leader Mitch McConnell.

The limit is set by law and cannot be increased except by the decision of Congress. Without it, the country will no longer be able to service its debt obligations, which Mrs. Yellen warned could happen as early as June 1st.

The Republican-majority House of Representatives passed a bill in late April calling for a sharp cut in government spending in exchange for a higher borrowing limit.

However, there is absolutely no chance the text will pass in the Senate, where Democrats have a majority and President Biden insists he refuses to negotiate what Mrs. Yellen calls the “draconian” cuts demanded by Republicans.

“If Congress does not raise the debt limit, the President will be asked to make a decision on how to use available funds. There are different options, but there is no good option (…) other than raising the limit,” his minister insisted.

The prospect of no increase would cause “tremendous damage to US households” and “chaos” in financial markets, the minister warned, noting that political games around the debt limit could damage the creditworthiness of the country and the dollar as the world’s reserve currency. It’s a “real problem,” insisted Ms. Yellen, the former head of the US central bank.

Source: APE-MPE, Reuters.