US debt ceiling, gov shutdown and Speaker of the House fight

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Wrangling over the US's debt ceiling seem like fairly common occurrences in recent history. I think most people are desensitized to the political theater that accompanies it and just assume that Congress will end up raising the ceiling eventually. But what if they don't this time? The question is, have people been lulled into a false sense of security that the American political class (both Congress and POTUS) will act rationally? The markets certainly don't seem to be indicating any fear of a real risk right now. We still have several months of theater to go apparently.

With the debt ceiling uncertainty looming over the U.S., International Monetary Fund (IMF) managing director Kristalina Georgieva warned that a default in the U.S. would increase rates and harm American consumers.

"It will be very damaging for U.S. consumers if the U.S. defaults, that would push interest rates up," Georgieva said during an interview with CBS's 60 Minutes. "And if people don't like inflation today, they're not going to like at all what may happen tomorrow."

The alarm comes after the Treasury Department's message last month that the U.S. was bumping up against the current borrowing limit of $31.4 trillion. And if the debt ceiling is not raised, the federal government could run out of money to pay all its bills by June.

The Treasury Department already began some extraordinary measures to keep paying the government's bills in January, including suspending investments for selected government accounts.

On Monday, Yellen once again called on Congress to raise the U.S. debt limit, stating that failure to do so would trigger "an economic and financial catastrophe."

"While sometimes we've gone up to the wire, it's something that Congress has always recognized as their responsibility and needs to do again," Yellen told ABC's Good Morning America program.

In an attempt to resolve the issue, Republican U.S. House of Representatives Speaker Kevin McCarthy and President Joe Biden met last week. But the standoff continued as the two agreed to meet again.

Congressional Republicans signaled that they would like federal spending cuts in exchange for raising the limit.

However, a member of the White House's Council of Economic Advisers, Jared Bernstein, noted over the weekend that negotiations over raising the U.S. debt ceiling are an "absolute nonstarter" for President Joe Biden. He added that Biden would be willing to discuss spending with Republicans.

"The negotiation over the debt ceiling, over default, is an absolute nonstarter for this president," Bernstein told Fox News. "There is a separate set of discussions and negotiations over fiscal policy."

Federal Reserve Chair Jerome Powell said last week that no one should assume the U.S. central bank can protect the economy from default.

"No one should assume that the Fed can protect the economy from the consequences of failing to act in a timely manner," Powell said at a press conference after the Fed's latest policy meeting Wednesday. "There's only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all of its obligations when due."

In an interview with CNN, Brian Moynihan, CEO of the second largest bank in the U.S., said that a default is an uncomfortable possibility.

"You hope it doesn't happen, but hope is not a strategy – so you prepare for it," he said in the interview.
Many analysts have noted that the growing risk of the U.S. government defaulting on its debt obligations will support gold's safe-haven appeal. ...

Wrangling over the US's debt ceiling seem like fairly common occurrences in recent history.
78 times in the past 63 years, which averages out to once every 9.7 Months.
Has it really been that frequent? My memory isn't what it used to be...
I cannot personally attest to it, but that is what I've read.
....and there have been periods where it has come up much more regularly, and other times not so much. Here lately it's been the latter, at about once every two years since '17. However, in 2013 it came up three times. Raised once, suspended twice.

In the 1950's, it was raised five times. In both the 60's and again in the 70's it was raised 15 times. 20 times in the 80's, but only seven times in the 90's.
I suspect the issue with my memory is that a lot of those instances were handled almost automatically - there wasn't any division or debate about it.
I suspect the issue with my memory is that a lot of those instances were handled almost automatically - there wasn't any division or debate about it.
Yes, the only times it hit the news cycle in a big way is when there are divisions and talk turns to that of potential default.

It still boggles my mind that so many people refuse to see our ponzi scheme of a system for what it is.
If the gov cannot avoid default without going further into debt, wtf else should it be called? They are admitting to paying off past investors with new investor's money. It's the same thing Bernie did.
From the link:

Playing chicken with the national economy is not unusual for Congress and the president. There was the time that former President Donald Trump ground the government to a halt because he wanted money for his border wall. Oh, and the time that tea party Republicans threatened to send the U.S. into debt default if Congress didn’t slash spending.

In fact, since 2010, there have been no fewer than five major fiscal standoffs between Republicans and Democrats akin to the one(s) we’ll probably brave later this year. These crises had tangible economic consequences, including the furloughing of 800,000 federal workers and the downgrading of the U.S.’s credit rating. But they also had political repercussions for the elected officials who caused them. And that track record could give us an idea of whom Americans would blame if brinksmanship in Washington, D.C., again upsets the economic apple cart.

By 2033, government will spend as much on Social Security as it does on military and all other discretionary spending combined. The 2023 federal deficit is projected to be $1.4 trillion, according to new estimates from the Congressional Budget Office (CBO). That means the federal government is expected to spend $1.4 trillion more than it takes in from taxes this year. And it's going to get worse: Between 2024 and 2033, this gap will average $2 trillion per year.

All told, the U.S. can expect to add almost $19 trillion in new debt over the decade.

"To put those numbers in context, the total amount of debt held by the public will equal the total annual output of the U.S. economy in 2024, rising to 118 percent of the economy by 2033," notes The New York Times. "The updated projections could supercharge a partisan debate between President Biden and Republicans over taxes, spending and the nation's debt limit."

CBO estimates are not accurate forecasts. But they are used for political arguments nonetheless.

CBO estimates are not accurate forecasts. But they are used for political arguments nonetheless.
Even if it's half that, who is gonna buy the amount of debt needed to support that level of gov spending?

As for the CBO's accuracy, what did their previous estimates compare to where we are at now? How accurate, or less than, were they?
Just looked and found this. CBO accuracy isn't that far off.

CBO regularly releases comparisons of the agency's budget projections with actual outcomes. In its July 2021 projections for fiscal year 2022,CBO underestimated revenues by 10 percent and outlays by 5 percent.
... As I show here, CBO projections more than two years into the future in the domain it perhaps studies most -- federal deficits -- are little better than random guesses.

Look at the chart below. It shows the deterioration of CBO predictive accuracy when it comes to the federal budget deficit. The circular markers show how accurate these predictions have been since 2009 in forecasting how large the federal budget deficit would be. As one can see, although CBO estimates are very good for the same year in which they are made, accuracy deteriorates rapidly. By year 3, CBO projections have actually been no better than luck.

This is a bit more in depth. That forbes article was almost entirely on their ACA.

They say that any errors in the CBO's deficit forecasts are due to them underestimating spending.

So if errors are caused by underestimating future spending, what does that say about their current forecasts? That it'll end up better than the forecast, or worse? My money is on the latter.
* bump *

House Speaker Kevin McCarthy will make his case that failing to strike a deal and lift the debt ceiling could upend global markets from the most high-profile market of all: The New York Stock Exchange.

It's an unusual setting for a political speech, but McCarthy's visit Monday will echo former President Ronald Reagan's visit to the floor in 1985, his first of two as president.

As Congress returns to from a two-week recess to a summery capital where the Treasury Department's mid-summer debt ceiling deadline feels tangibly closer, McCarthy finds himself in an increasingly difficult position.

President Joe Biden has not budged in three months on his refusal to negotiate over the debt limit, and has so far dismissed Republican efforts to tie a debt ceiling vote to a simultaneous deal on budget negotiations.

President Joe Biden has not budged in three months on his refusal to negotiate over the debt limit,

That's because he wants to do like every other time it's come up. Ie: wait until the last minute so it becomes "must pass" legislation, with nothing actually done to fix the problem.
U.S. Treasury Secretary Janet Yellen said the U.S. could run out of money to pay its bills by June 1 if Congress fails to raise or suspend the debt ceiling. This is earlier than previously thought.

"After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government's obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time," Yellen wrote in a letter to House Speaker Kevin McCarthy.

Political game of chicken is likely to get intense this month.
The question really is do the socialists really care if the dollar defaults?
Both the Dems and Pubs care. It's more a matter of hubris that they can successfully pin the blame for failure on the other side. Until it becomes apparent that they will suffer the blame/consequences, neither side has any reason to back down.
Both the Dems and Pubs care
They "care" about different things.

The dems care to continue spending as normal, ie: like 50 drunken sailors.
....and the 'pubs care about reducing that spending to the level of 25 drunken sailors.

Way I see it, at least the 'pubs are trying to go in the right direction.

We have a spending problem, so the 'pubs are closer to being correct than the dems are.

Simplist answer would be to just cut spending across the board to match the 2018 budget.

If our so-called leaders did that, the gov budget would immediately show a surplus and we would not need to borrow anything.
I think the drama with the election of McCarthy to Speaker of the House provided sufficient evidence that the Republican party is having to negotiate within it's ranks with a hard core, uncompromising group. They are going to continue pushing for concessions/dialogue on spending before pushing through a debt ceiling bill.

The Dems in the Senate (led by Shumer) and Biden administration think they can successfully blame the Republican party for non-action on the debt ceiling issue. They aren't going to budge as long as they perceive a political benefit to stonewalling Republican calls for dialogue on spending.

There is a very real political impass right now and both sides are gambling that the other will cave to pressure from their constituents. Yellen et al are trying to wake the masses up on the issue so that pressure might build and someone caves. It's not in anyone's interest to let a default happen. The game of political chicken continues.
Politico op-ed argues for monetary insanity:
It’s past time for the White House to consider their unilateral options for avoiding economic disaster more seriously.

Perhaps the most prominent proposal to sideline Congress calls for the Treasury to mint a trillion dollar platinum coin and deposit it with the Federal Reserve, ensuring the government has plenty of money to pay its bills. So far, Treasury Secretary Janet Yellen has rejected the idea, warning that the Fed might not accept the coin and that, in her view, the central bank is not legally obligated to accept it.

There are other ideas floating around, but the one thing they all have in common is that they rely on the Federal Reserve’s cooperation and its willingness to continue acting as the government’s “fiscal agent” — essentially its banker, a role established by the Fed’s statute.

Under one scenario, for instance, if the Treasury Department decided to switch to issuing low face value, high coupon bonds, the Federal Reserve would have to facilitate the creation of such bonds in their book entry system, facilitate their sale and make periodic interest payments on Treasury’s behalf. Alternatively, if the Biden administration decided to declare the debt ceiling unconstitutional, or made other similar maneuvers, the Fed would again have to facilitate auctions of securities and defer to Treasury legal interpretation. In this sense, the platinum coin option is the most straightforward one since it draws on the Federal Reserve’s most basic “fiscal agent” responsibilities — accepting deposits.

Yellen et al are trying to wake the masses up on the issue so that pressure might build and someone caves.
The problem with that, is that masses are also divided as to what should be done.

Those who support the dems mostly want spending as usual, and those on the other side mostly see the need for spending reforms.

The ones you call the "hard core, uncompromising group.", is the correct group.

Spending is out of control and needs to be reigned in.

What would be so bad about reverting to a 2018 level of spending? We'd end up with an instant surplus, and could start reducing the debt without having to borrow.

2018 wasn't that long ago, and everything would be fine.
It's a freaking Politico poll. not even worth a click.
I didn't click it. As soon as I saw in the 'Bugs excerpt from it that a trillion dollar coin was mentioned, I knew it was bs.
They won't default. They can print as much paper as they want. Only problem is groceries, new cars and gasoline require much more paper each time the govt presses go Rrrrrrrrr.

Welcome to 1974 with internet and cell phones.
*Note: this is an opinion piece. Enjoyed the read, ergo the post.

From the link:

MMT advocates use the 14th Amendment to argue that the Treasury must issue its $1 trillion platinum coin if the crunch comes to circumvent the restriction. And there’s a lot to be said for a fait accompli. However, Treasury Secretary Yellen does not support the idea.

Another idea is to challenge the debt ceiling in court. The problem is investors would not have standing until they were harmed, as in a default had actually occurred. But the Administration could, presumably before a default occurred.

But the feckless Biden Administration has been unwilling to consider this idea. A January Washington Post story said that all they were planning to do was stare Republicans down. The New York Times, two days ago, depicts the Administration as considering relying on the 14th Amendment. It does not appear that they would go to court to prefect their rights first, but would simply breach the debt ceiling and let Republicans try to stop them. From the New York Times:

Under the theory, the government would be required by the 14th Amendment to continue issuing new debt to pay bondholders, Social Security recipients, government employees and others, even if Congress fails to lift the limit before the so-called X-date….
Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion and requires congressional approval to raise or lift….
It is unclear whether President Biden would support such a move, which would have serious ramifications for the economy and almost undoubtedly elicit legal challenges from Republicans. Continuing to issue debt in that situation would avoid an immediate disruption in consumer demand by maintaining government payments, but borrowing costs are likely to soar, at least temporarily.
I’m not sure why interest rates would necessarily rise. Recall the near-universal predictions that the world would come to an end when S&P threatened to, and finally did, downgrade the US rating. Your humble blogger was virtually alone in saying it would prove to be a nothingburger, market-wise, which proved to be correct.

The post below provides historical background.

Treasury yields will rise if the markets lose their appetite for buying new tranches. Ex.:

  • Congressional leaders and President Joe Biden left a White House meeting without appearing to make progress toward a deal to address the debt ceiling.
  • House Speaker Kevin McCarthy said he did not see “any new movement” on negotiating positions.
  • The U.S. risks a default and economic catastrophe if Congress fails to hike the borrowing limit.
On Capitol Hill, debt ceiling negotiators prepared to narrow their focus to a smaller group of key issues that were ripe for compromise, an encouraging development with just nine days left before the U.S. faced the serious risk of a potentially catastrophic national debt default.

"We're getting closer," McCarthy told reporters late Monday, adding that the "circle" of issues was becoming "smaller, smaller, smaller."

The issues still on the table Tuesday included reforms to energy permitting, new work requirements for some forms of federal aid and the redistribution of unused Covid-19 emergency funds.

Also on the table are "health savings," CNBC reported Monday, which could include reforms to how much the government pays health-care companies under several major federal health insurance plans.

Is the circle of issues getting smaller because House Reps are caving, or because they negotiated some agreement with the Biden administration? Seems like this is playing out a lot like the speakership battle. The list of demands started big and many were discarded until there were just a few that the holdouts drew the line on. I guess we'll see. :popcorn:
A bit long but interesting.

Debt Default is Just a Terror Tactic, but it Will Blow up Stocks and Likely a Lot More, Regardless​

You’ve heard the warnings many times from every direction. In fact, it is almost all you hear right now: default is a serious threat if the debt-ceiling is not raised:

President Joe Biden and House Speaker Kevin McCarthy both said they had a productive debt ceiling discussion late Monday at the White House, but there was no agreement as negotiators strained to raise the nation’s borrowing limit in time to avert a potentially chaotic federal default. It’s a crucial moment for the Democratic president and the Republican speaker, just 10 days before a looming deadline to raise the debt limit.

More here:

(Bloomberg) -- President Joe Biden and House Speaker Kevin McCarthy compromised on bitterly contested disputes over federal spending and assistance for the poor as part of their debt-limit deal. They must now sell the deal to lawmakers from both parties.

Here’s a look at the most contentious and economically consequential provisions of the agreement they unveiled on Saturday, just days before the Treasury is projected to run out of cash on June 5.

^^^ from one of the comments comes the truth.

"Most of America will tell you all about Kim Kardashian and her larger-than-life tush but have no clue about the laws screwing them, their kids, and their communities. Disgraceful."

To fix the government, relative to spending anyways, all that needs to happen is to revert to the level of gov spending in 2017.

If they did that, the gov would have a balanced budget overnight, no one would have their entitlement payments cut, interest payments would be made and the debt ceiling would not need to be increased.
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