US hits debt ceiling, increasing economic uncertainty - Liberty

Thursday, October 19, 2023

US hits debt ceiling, increasing economic uncertainty


The Treasury Department uses so-called special measures to allow the federal government to continue paying its bills. Stephanie Reynolds

As the US hit its debt ceiling on Thursday, the Treasury Department launched a series of accounting maneuvers to allow the federal government to continue paying its bills.

In a letter to Congress, Treasury Secretary Janet L. Yellen said she would begin using "special measures" to keep the government from violating statutory debt limits. paddy field. He asked lawmakers to raise the cap or suspend it. Meet your financial obligations.

“The length of time the temporary measures may last is subject to considerable uncertainty, including the challenge of forecasting US government payments and receipts months into the future,” Yellen said. I respectfully ask Congress to act swiftly to protect America's full confidence and credit.

The milestone that she hit her $31.4 trillion national debt ceiling resulted from decades of tax cuts and increased government spending by Republicans and Democrats. But now, with partisanship on the rise and the government divided, this is also a warning of a stubborn partisan battle set to dominate Washington in the coming months, which could end in an economic shock. There is a possibility.

Newly empowered Republicans in the House have vowed not to raise the borrowing limit again unless President Biden agrees to a drastic cut in federal spending. Without conditions to cover the spending incurred. The limit should be raised.

Treasury officials said the measure, which went into effect Thursday, will keep the government from making payments to federal employees, Medicare providers, investors holding Treasury bonds, and other federal dollar recipients until at least early June. said it would not be possible. I said I could continue. I can go on is assumed to be

But economists warn that unless Congress lifts the restrictions before the Treasury Department's ability to buy time runs out, the country risks a financial crisis or other imminent economic hardship.

What made this episode so terrifying was also thanks to the lessons both parties learned from his decade-plus battle over the debt limit. defaulted before the cap was agreed

Most Democrats are convinced that negotiating the debt ceiling will only increase the risk of economic disaster by encouraging Republicans to use it as leverage.

The newly-elected Republicans are encouraged by the anger of supporters and conservative advocacy groups for forcing concessions and not raising limits in the past, and hope it never happens again. I swore.

Treasury Secretary Janet L. Yellen dismissed the idea of unilaterally increasing borrowing limits, such as issuing a trillion-dollar coin, as fantastic. Sarabeth Manny

In practice, both parties support policies that increase government borrowing. Republicans have repeatedly passed tax cuts in the last two decades of their control of the White House. Democrats have expanded their spending plans, which are often not fully offset by higher taxes. I voted for a large financial aid package.

Federal spending has fallen from the pandemic heights of 2022, reaching nearly $6 trillion in the fiscal year, just under 24% of the economy. The federal budget deficit, the deficit between US spending and taxes and other revenues, exceeds $1 trillion annually. The Biden administration expects the budget deficit to rise again this fiscal year, but down from the last two years as emergency pandemic spending expires.

Many House Republicans say current spending levels and debt burdens are a threat to economic growth. They have yet to formally call for an increase in the debt ceiling, but for more than a decade they have been pressured to lead to significant spending cuts and a balanced budget passage.

Missouri Rep. Jason Smith, chairman of the House Ways and Means Committee, said in a statement:

White House officials say it would be inappropriate to condition the tightening of restrictions. They also point to the first bill the new House picked up this month, saying Republicans aren't serious about reducing the deficit and that the bipartisan Congressional Budget Office will generate $180 billion over the next decade. . yes. You said you were prophesying. This would add more than $1 to the budget deficit.

“If they can’t cut Social Security, Medicare, and Medicaid, they will hold the debt ceiling hostage, killing millions of jobs and his 401(k) plan,” said White House spokeswoman Kareen.

Congress still has months to find a way to raise the limit. The Treasury is expected to continue the so-called emergency measures as long as possible. But the more the country's cash runs short, the more economic damage will start to mount, and the US will be unable to pay its bondholders and may default on its debts. In 2011, as the impasse escalated, investors became nervous, pushing up borrowing costs for businesses and homebuyers.

Finance officials estimate that the act of initiating hiring will allow the government to continue paying federal employees. Justin Sullivan

On Thursday, Yellen began a process that will likely take months to use special measures to delay defaults. In the meantime, the Treasury will invest the full amount of the Civil Service Retirement and Disability Fund, but it wasn't needed's gone. pay the beneficiary. Self-investment in the Postal Retirement Health Insurance Fund was also suspended.

If the stalemate continues, Ms. Yellen will likely have to take additional steps. If the US fails to pay all bills on time, it will be difficult to determine the actual "X-date".

The nature of the upcoming battle is just beginning to take shape. House Republicans are calling for sweeping “financial reform.” Some have suggested that Democrats want a reasonable increase in the debt ceiling, but are willing to find ways to cut spending.

West His Democratic moderate Senator Joe Manchin III of Virginia said in an interview with his Fox Business Network on Wednesday that Congress will revive his 2010 Bowles-Simpson deficit reduction plan and raise the debt ceiling. said. He said. He said. He combines those ideas. Manchin said he was looking for bipartisan ways to cut wasteful spending, but he didn't seem ready to support cutting the country's social safety net program.

"We have nothing to lose. We can't abolish social security or scare people by saying we're going to privatize it. It won't happen," Manchin said.

Senator Joe Manchin III says he is looking for bipartisan ways to cut wasteful spending. Shuran Fan

The cost of not raising borrowing limits is devastating and could lead to a deep recession in the US and a global financial crisis.

EY-Parthenon chief economist Gregory Daco said this week that U.S. economic output could be cut by 5% if the debt ceiling isn't raised or suspended before the temporary measures are gone. Stated. Such a contraction would be a heavy blow to an economy that is expected to grow moderately this year.

“Treasury needs to balance the federal budget by ensuring government spending matches government revenue,” Dako said, adding that such a scenario would lead to a “self-induced recession,” I added. He predicted that there was a risk that he would lead to "serious financial market turmoil."

Yellen dismissed the idea of unilaterally increasing borrowing limits, such as issuing a trillion-dollar coin, as fantastical.

Some veterans of the debt limit battle predict that enough Republicans will bounce back from the brink of default as the X-date approaches.

"No one knows what will happen if the debt ceiling is breached, but I guess the good things will continue," said Christopher Campbell, who served as treasurer's assistant at financial institutions from 2017 to 2018. Very few people said. How bad can it get?

Campbell, a former Republican staff director on the Senate Finance Committee, added, "At the end of the day, I think a cold heart needs to win."

But White House officials have begun informally exploring alternative routes to raising the limit, including overwhelming Democratic support to force a vote on raising the debt ceiling. Some things are included. It also contains a ruse that could take months. They have repeatedly said they want Congress to lift the restrictions, but have expressed no confidence that the Republicans will yield in the negotiations.

Jean-Pierre reiterated Wednesday that Biden will not negotiate a higher debt ceiling. When asked if they thought it was their responsibility to raise the cap and avoid defaults, Republicans said, "We should."