Hurtling toward default

Your Balance of Power newsletter looks at the prospects of a US debt default. [View in browser]( [Bloomberg]( The risk has never been higher that the world’s largest economy could default on its national debt for the first time. The US government has reached its legal borrowing limit — $31.381 trillion — and far-right Republicans in the House are demanding concessions from the White House, such as spending cuts, in exchange for lifting the ceiling, as they have previously over the years. Key reading: - [White House Says Biden Won’t Negotiate in McCarthy Debt Talks]( - [Treasury Has About $500 Billion of Headroom After Debt Limit Hit]( - [What’s the Debt Ceiling, and Will the US Raise It?: QuickTake]( - [Trump Demands Republicans Spare Entitlements in Debt Fight]( - [McConnell Debt Pledge May Sap McCarthy’s Push for Spending Cuts]( President Joe Biden rejects reducing expenditures while warning a default would mean “calamity.” Analysts say it could destabilize global bond markets. Others including Senate Republican leader Mitch McConnell say a deal is inevitable, and Biden has agreed to at least chat about it with new Republican House Speaker Kevin McCarthy. The Treasury Department has about $500 billion of extraordinary measures it can use to allow the US to dodge a payments default while Congress hashes out a deal. Still, with compromise a scarce commodity in the capital, it will be a Herculean task to find a middle ground acceptable to both the Biden administration and the Donald Trump wing of the House GOP. One jokey idea making the rounds is that Treasury Secretary Janet Yellen can make the whole thing go away by simply minting a $1 trillion coin and depositing it at the Federal Reserve. So far she’s behaving as if the debt limit is real and requires congressional action. So how does it end? Someone blinks, before or after a default, which could come some time in the third quarter of this year. Or Biden sides with liberals who argue the limit ought to be ignored as unconstitutional and keep on borrowing. Risky? Definitely. Biden is also embroiled in a controversy over the discovery of classified documents in his office and home and his popularity is falling in opinion polls. But as he tries fire up his political base before an expected bid for reelection next year, there might not be a better play. — [Alex Wayne]( Biden and McCarthy. Source: Andrew Harrer/Bloomberg [Sign up here]( for the Bloomberg Businessweek newsletter for unique perspectives and original reporting every weekend. And if you’re enjoying this newsletter, [sign up here](. Global Headlines Embarrassing situation | The emergence of another batch of classified material found in Biden’s home in Delaware has made even members of his own party [upset with him](. Democratic allies responded with exasperation and growing concern to news over the weekend that FBI agents made a second discovery since his lawyers declared the search had concluded. Weighing tanks | European Union foreign ministers will [further debate]( the question of tank deliveries to Ukraine in Brussels today, the bloc’s foreign policy chief Josep Borrell told reporters, adding he personally believed “these kind of arms should be provided.” Latvia’s top envoy [criticized]( Germany over its indecision on sending Leopard 2 tanks, saying there are no longer “good arguments” for refusing the heavier weapons Kyiv demands. - Russia is at the center of a [rail cargo route]( supplying Western arms manufacturers with a steady supply of rare earth metals needed to make the microchips, electronics and ammunition used in modern weaponry. Russia’s biggest companies, even those not directly targeted by recent sanctions, are [bypassing Wall Street]( to repay their outstanding debt after the crackdown broadly disrupted the financial plumbing needed to service bonds. The country’s international corporate bond market has shrunk by about $12.7 billion since its invasion of Ukraine prompted the US, UK and EU to block Russia’s access to foreign capital. Covid toll | China said its Covid-related [death toll]( topped more than 12,600 in the week before the Lunar New Year holiday, while a top health official said about 80% of the population had been infected since virus controls were abruptly dismantled late last year. Officials in the country of 1.4 billion have come under fire for dramatically narrowing its definition of a Covid-19 death and halting daily caseload reports. Best of Bloomberg Opinion - [US Could Defend Taiwan From China — at Great Cost: Tobin Harshaw]( - [Yemen’s Fragile Truce Needs Good Deeds to Survive: Bobby Ghosh]( - [Joe Manchin May Be Key to Averting Debt Crisis: Matthew Yglesias]( Tax bill | The whiff of [scandal]( returned to the UK’s ruling party after Conservative Party Chairman Nadhim Zahawi said that he’d been careless with his tax affairs, a case that’s becoming a distraction for Prime Minister Rishi Sunak. The admission by Zahawi, a former chancellor of the exchequer, followed a weekend report that he agreed last month to pay a penalty to tax authorities as part of a £4.8 million settlement. Explainers you can use - [Germany and France Push for Huge Spending to Compete With US]( - [What Europe Risks With Wider Sanctions on Russian Oil]( - [Nigeria’s $11 Billion Lawsuit Threatens Africa’s Biggest Economy]( Ambitious target | Prime Minister Narendra Modi is closer than any predecessor to being able to claim that India is finally meeting its [economic potential](. However, as [Kai Schultz]( and [Vrishti Beniwal]( explain, he will have to wrestle with the drawbacks of the country’s exceptional scale: the remnants of the red tape and corruption that has slowed India’s rise, and the stark inequality that defines the nation of 1.4 billion people. Bloomberg TV and Radio air Balance of Power with [David Westin]( on weekdays from 12 to 1pm ET, with a second hour on Bloomberg Radio from 1 to 2pm ET. You can watch and listen on Bloomberg channels and online [here](. News to Note - Incoming New Zealand Prime Minister Chris Hipkins will prioritize the economy as a recession looms and [may jettison]( some of predecessor Jacinda Ardern’s policies as he seeks to win back the political middle ground ahead of an October election. - South Africa defended its planned [naval exercise]( with Russia and China next month amid criticism over its noncommital stance on the war in Ukraine. Russian Foreign Minister Sergei Lavrov met with his South African counterpart in the country today. - Slovakia took a step closer to [early general elections]( aimed at ending a year-long political deadlock that triggered the government’s collapse last month. - Argentina and Brazil are in the preliminary stages of renewing talks on forming a [common currency]( for financial and commercial transactions, reviving an often-discussed plan that would face numerous political and economic hurdles. - Congolese opposition leader Moise Katumbi said he would [cancel]( a controversial plan to allow drilling for oil and gas in one of the world’s most important carbon sinks if he wins an election later this year. Thanks to the 56 people who answered the Friday quiz and congratulations to Alex George Bejan, who was the first to name India as the country with the world’s biggest population. And finally ... Peru’s political protests have now hit the tourism sector, with a government decision to close the world famous [Machu Picchu]( and Inca Trail archaeological sites until further notice. The Andean nation has witnessed weeks of violent demonstrations against President Dina Boluarte since she replaced Pedro Castillo, who was impeached and jailed. The UNESCO World Heritage sites have been closed to “ensure the safety of tourists and the general population,” the government said. The Machu Picchu archaeological site in Peru. Photographer: Roger Parker/Bloomberg Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. You received this message because you are subscribed to Bloomberg's Balance of Power newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. 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