Lawmakers remain 'highly disincentivized to come to a deal' on the debt limit: Expert

Eurasia Group President Ian Bremmer joins Yahoo Finance Live to discuss the debt ceiling's June 1st deadline, President Biden's approval rate, China-U.S. relations, the Russian-Ukrainian war, and the outlook for the market amid the war and economic slowdown.

Video Transcript

AUSTAN GOOLSBEE: I think the context of the debt ceiling now kind of coming due, becoming more salient, is going to make for potentially a lot of weird things to happen in financial markets. So we should be extra attuned to that. And let us hope they can just get past this and raise the debt ceiling so this isn't a self-inflicted wound of the most grievous kind.

- That was Chicago Federal Reserve Bank President Austan Goolsbee on Yahoo Finance earlier today addressing the need for Congress to raise the debt ceiling. Now, President Biden will meet with top congressional leaders Tuesday to try to come to an agreement. Democrats want to raise the debt ceiling without qualifications. Republicans want to see spending cuts before considering raising that limit.

And lawmakers have until June 1 to take action. That's when the Treasury Department says the US will run out of money to pay its bills. For more on this standoff, let's bring in Ian Bremmer, Eurasia Group founder and president. Ian, we've circled June 1 on our calendar because the Treasury has said that's sort of the date where the US is essentially going to default. But you've said that's kind of a conservative estimate. What are your models telling you about what that X date is?

IAN BREMMER: Yeah. The economists don't buy June 1. Members of Congress don't by June 1. Our own Eurasia Group internal economic model thinks later, sometimes in mid-June at earliest. So in other words, there's less incentive to come to a deal or punt before that June 1 X date. But nonetheless, it is coming soon. And the market implications are going to be real.

- Obviously, nobody wants to be blamed for a debt default. And we've got this meeting at the White House tomorrow. I mean, who's in a riskier position? I mean, if you think about Kevin McCarthy, he's got a very fragile party right now. He's obviously worried about his position as well. Is the pressure more on the Republicans than the president?

IAN BREMMER: The pressure more on McCarthy individually because he has such a narrow majority and his party is so fractured. And you saw how hard it was for him to secure the speakership, also how hard he was willing to fight for it. He could easily lose his job over this. That's obviously not going to happen to Biden. And any given member of the Republican Party has their own more narrow political interests they're willing to look after.

So if anyone is in the hot seat here, it's going to be McCarthy. But what's really going to happen is that, over time, as we get closer to government shutting down, and therefore essential services that reflect 8% of the US total economy, which means constituents are going to be really angry at their individual members of Congress if that happens because they will be maximally inconvenience, that's when you'll start to see people buckle. We aren't there yet. And the whole problem with this entire debt limit crisis is until you create a crisis that feels real and causes actual pain for the people that are voting, they are highly disincentivized to come to a deal.

- Ian, it sounds like you think both sides really have a lot to risk. The American people, obviously, a lot on the line here when it comes to the personal impact. And this, of course, comes on the heels of new poll out from "Washington Post" and ABC, saying that President Biden's approval rating hitting a new low. He's trailing behind Trump and DeSantis potentially here in 2024. What does that tell us just about where the priorities should lie for the Biden administration and what the next year could potentially look like?

IAN BREMMER: That Biden should look like a centrist. So, ultimately, he should be more incentivized towards a deal to be a responsible person that gets this done. That is, of course, how he won back in 2020. But still, not until there's real pressure that forces the GOP to the table. And they're not there yet. But, look, anybody out there-- and as you know, I travel around the world.

I talk to a lot of foreign leaders. And very few of them believe that it is plausible that President Trump after January 6, after two impeachments, after all these court cases could possibly win again. It is likely he's going to get the nomination. It is absolutely possible that he can be president a second time. And anyone that wasn't believing that just needs to watch that poll. And that's leaving aside what Biden's health is going to look like over the course of the next 2 years, 18 months.

So this is a really big issue. And people need to actively adjust their risk assessments as a consequence. I mean, I was thinking about the big speech that Jake Sullivan, the national security advisor, gave last week about the new Washington Consensus. And the biggest challenge with rolling out a strategic policy plan-- I don't care how well thought it is-- is that if you don't believe as an ally or as an adversary of the US that the Americans are going to be credible to hold on to any policy they have in a couple of years time. Nobody listening to Xi Jinping thinks that. But for the United States, there is proximate domestic political risk around all of this stuff.

- Yeah. And Ian, speaking to that, when we talk about the confidence in the government and government officials and business leaders, we have been looking at the polls now, that has been declining for quite some time. What does that say just about the current environment, how that really shifts the strategy of either Democrats and Republicans, and how we potentially fix that issue?

IAN BREMMER: Small business leaders are respected. Scientists are still respected. But, frankly-- the military, the serving military in the United States are quite respected. But, overall, levels of trust for politicians, for mainstream media, for individual CEOs has gone to the toilet in the United States. Some of that is general polarization of the House of Representatives and the corporate mainstream media. I think those are big piece of it.

Part of it is social media. And the drivers of-- I was just looking today. There was a wonderful poll that came out-- I think it was Pew Research-- that was looking at how Democrats and Republicans self-identified do or do not trust different aspects of the media. And the Weather Channel came out number one, which, of course, is almost always wrong, but we trust them to be wrong. So that's useful. But after the Weather Channel, PBS was number two.

And it's kind of interesting. I saw the poll on Twitter. And, of course, PBS is the one that doesn't tweet anymore because Twitter decided to take them on as state supported. I mean, literally almost everything one could do in an environment to create mistrust for the way information is disseminated and incorporate it into your worldview is happening at speed right now in the United States. So when you say, what can we do to change it, no, no, no. It's what can we do to make it worse, because that's actually where we're headed.

- Well, that's on a negative note there. Ian, let's talk about the new Washington Consensus you just mentioned. Jake Sullivan unveiling this. This is essentially the national security advisor talking about the new approach that the administration is now taking towards China as one of not decoupling, but of de-risking, reducing the exposure to China. You don't just talk to lawmakers. You talk to business leaders as well. What are you hearing from them about how they're viewing the Chinese market right now?

IAN BREMMER: I think the de-risking is the way that many CEOs are thinking about the Chinese market right now. They still believe in it. They still believe that China is likely to be the largest economy in the world within, say, 6 to 10 years. But they also do not have a lot of confidence about what the regulatory environment, the legal environment will be for them to operate inside China.

And they also don't have a lot of confidence of what the sanctions environment and the regulatory environment will look like in the United States towards China. And in that regard, they're not taking investment out of China, but they are pausing or reducing the scale of increased investment that they're making into China right now. Now, having said that, let's keep in mind that US-China trade right now is that historically highest levels it's ever been. And you would never know that from going to Washington and listening to policymakers.

- Certainly. And also, Ian, there's certainly been a shift in rhetoric when it comes to China and the role that China could potentially play in peace talks with Russia's invasion of Ukraine. At least there has certainly been some shift from the US and a number of its allies. You're out with the paperback launch of "The Power of Crisis," a new epilogue on the Russia-Ukraine war. I'm curious from your perspective. We have certainly been hearing signs that Ukraine is starting to take the counter offensive. Where do we stand in this war? And how do you see that potentially going?

IAN BREMMER: So we have had an extraordinary amount of alignment between the United States and its allies on the Russia-Ukraine issue over the last 15 months. I mean, really far beyond what anyone could have imagined in terms of the military support for Ukraine, in terms of the economic sanctions and other related punishment, the freezing of assets of Russia, and also just the general diplomatic engagement transparency among all of NATO, among all of the EU.

I mean, even 27 EU states during a war saying, we want Ukraine to join the European Union. That is quite a statement, staggering for all those countries, even Hungary signing up for that. Having said that, the war-- I mean, no one in Ukraine really believes that they're going to be able to take all of the land back that the Russians have stolen from them. So how do you get from here to a conclusion?

And what the Chinese are now doing, after Xi Jinping has belatedly, but nonetheless, spent an hour on the phone with Zelenskyy on the anniversary of the Chernobyl disaster nonetheless. And Xi Jinping can now publicly say I'm the one guy with global influence that can have a strong high-level conversation with both Putin and with Zelenskyy. No one in the West can do that.

And when we get past the Ukrainian counter-offensive-- we'll see how successful it is-- you're going to see not just the Chinese, but an awful lot of countries in the world say, look, it is time to start talking. It's time to try to get a ceasefire in place. The Ukrainian government probably won't support that. Lord knows the US won't support that. But there'll be a lot of voices that do, maybe including the French, by the way. And I think that Xi Jinping today is diplomatically in a much better position than he was in 6 months ago, 9 months ago, 12 months ago when he felt a little sheepish about his close relationship with President Putin. That is less of a liability in Xi Jinping's mind right now.

- All right. Ian Bremmer, we really appreciate you taking the time. President of Eurasia Group, also author "The Power of Crisis." Thanks so much.

IAN BREMMER: Good to see you.