"Moody’s Analytics estimates that even a short debt ceiling breach could cause a recession. An analysis by the White House’s Council of Economic Advisers modeled a more protracted default and foresaw a crash on the order of the 2008 financial crisis: The stock market falls 45 percent, unemployment rises by five points, and America’s long-term borrowing costs are much, much higher. All of this to pay money we already owe and can easily borrow. Madness."- Ezra Klein, NY Times yesterday
“My conservative colleagues for the most part support the Limit, Save, Grow bill and they don’t feel like we should negotiate with our hostage,” - Rep. Matt Gaetz, two days ago
The clock is ticking and later today President Biden is scheduled to meet with Kevin McCarthy (GOP House Speaker) for what may be the last chance to nail a deal to raise the debt ceiling. Make no mistake that this is for all the marbles and anyone not paying attention is in for a brutal wake up call.
Most serious financial experts believe if the debt ceiling isn't raised in 10 more days there will be an economic calamity. We're talking a stock market crash of up to 45 percent wiping out trillions in wealth- with 401(k)s taking crippling hits, not to mention massive layoffs that could reach 8 million. Add in soaring inflation that may take years to tame, not months and a potential surge in homelessness and food insecurity and you have most of what is coming at us like a freight train. Adding even more ominous overtones, a recent survey by the National Low Income Housing Coalition showed a U.S. wide shortage of 7.3 million affordable rental homes, i.e. for extremely low-income renters.
This is germane as we learned yesterday - off the AP wires- that the razing of older mobile homes across the U.S. eliminates some of the already limited low cost housing stock - for the poorest of the poor. The bulldozing is going on at such a pace that residents, like in Phoenix, may soon have to double up with relatives or sleep in their cars. And the Republicans will make it ten times worse if Biden and the Dems yield to their insane demands.
Amidst all the potential for economic horror, let's make damned sure we have our heads screwed on straight and know who the bad guys are. Hint: It is the cult determined to sink the nation if they don't have their insane demands met: the financial terrorists known as the GOP.
Let me also remind those still reading my blog, that during the last debt-ceiling standoff in 2011 investor confidence was shaken to the core. Analyses after that near-default showed that the plunging stock market vaporized $2.4 trillion in household wealth, which took years to rebuild, and cost taxpayers billions in higher interest payments. Today, credit is more even more expensive, and the banking sector is shaken after the collapse of the Silicon Bank SVB, i.e.
The SVB Bank Collapse - Reasons For It - And Why It's Not A Good Idea To Panic
And the desperate rescue of First Republic by Jamie Dimon's JP Morgan bunch. Add to that the fact the current economic expansion is tailing off rather than beginning and the outlook is far from sanguine.
Republican terrorists have proposed pairing a debt-limit increase with sharp cuts in government spending. We are talking nightmarish stuff starting with stripping away protections for renters that could leave millions more sleeping in tents on the streets. And it doesn't stop there. Their "pledge" to spare Social Security recipients, Pentagon spending and veterans’ benefits would require steep reductions in other programs — like housing, toxic waste cleanup, air traffic control, cancer research and other categories that are economically important. The pain, in other words, would spread nationally to a much larger population - and the Democrats would likely be blamed for giving in and allowing it. Which is why they can't give in now to the terrorists' demands.
They also well recall the 2011 Budget Control Act, which resulted from that year’s standoff, leading to a decade of caps that progressives have criticized for preventing the federal government from responding to new needs and crises.
This has engendered the current mounting tension which could cause problems through a number of channels. For one, rising interest rates on federal bonds will filter into borrowing rates for auto loans, mortgages and credit cards. That inflicts pain on consumers, who have started to rack up more debt — and are taking longer to pay it back — as inflation has increased the cost of living. Increasingly urgent headlines might prompt consumers to pull back on their purchases, which power about 70 percent of the economy.
Interrupting the smooth
functioning of federal institutions has already created a headache for state
and local governments. Many issue bonds using a U.S. Treasury mechanism known
as the “Slugs window,” which closed on May 2 and will not reopen until the debt limit is
increased. Public entities that raise money that way now have to
wait, which could hold up large infrastructure projects if the process drags on
longer.
When do these consequences really start to mount? In one sense, only when investors shift from assuming a last-minute deal to anticipating a default, a point in time that is nebulous and impossible to predict. But a credit-rating agency could also make that decision for everyone else, as Standard & Poor’s did in 2011 — even after a deal was reached and the debt limit was raised — when it downgraded the U.S. debt to AA+ from AAA, causing stocks to plunge.
What if June 1 arrives with the Reeps still holding a gun to the nation’s head and no debt ceiling increase? Most experts say the Treasury Department would continue to make interest payments on the debt and instead delay fulfilling other obligations, like payments to government contractors, veterans or doctors who treat Medicaid patients. That would prevent the government from immediately defaulting on the debt, but it could also shatter confidence, roiling financial markets and leading to a sharp pullback in hiring, investment and spending.
The worst case scenario would be a delay in payment of Social Security benefits to more than 63 million recipients, as well as a halt in VA benefits and possible Medicare support -remuneration of medical centers for delivered care. At this stage I cannot see how this standoff ends well, and you can blame the unhinged demands of the Reepos for that - whose tactics Edward Luce warned us about more than 7 months ago.
Finally, let's get it straight once and for all this is not about controlling spending or lowering deficits, those are smokescreens. It can't possibly be because whenever the Reeps are in power - as they were for the first two years of the Trump administration - they didn't do jack shit about spending or deficits. Instead they blew through ever barrier, including a $1.7 trillion tax cut mainly for the rich, and other spending like the veritable drunken sailors. Nope, this is about one thing only: trying to sink Biden's chances for re-election just like they tried to sink Obama's back with the near 2011 default. Only the consequences of this default - if it happens - will be much much worse Again, bear in mind who the bad guys are!
See Also:
Biden uses good cop, bad cop against the GOP’s debt ceiling extortion
by Joan McCarter | May 9, 2023 - 7:23am | permalink
by Jeffrey D. Sachs | May 21, 2023 - 7:23am | permalink
Excerpt:
In the year 2000, the U.S. government debt was $3.5 trillion, equal to 35% of the Gross Domestic Product (GDP). By 2022, the debt was $24 trillion, equal to 95% of GDP. The U.S. debt is soaring, hence America’s current debt crisis. Yet both Republicans and Democrats are missing the solution: stopping America’s wars of choice and slashing military outlays.
Suppose the government’s debt had remained at a modest 35% of GDP, as in 2000. Today’s debt would be $9 trillion, as opposed to $24 trillion. Why did the U.S. government incur the excess $15 trillion in debt?
The single biggest answer is the U.S. government’s addiction to war and military spending. According to the Watson Institute at Brown University, the cost of U.S. wars from fiscal year 2001 to fiscal year 2022 amounted to a whopping $8 trillion, more than half of the extra $15 trillion in debt. The other $7 trillion arose roughly equally from budget deficits caused by the 2008 financial crisis and the Covid-19 pandemic.
And:
Excerpt:
If the GOP regains the House, four of the leading Republicans contenders for the House Budget Committee chair have all vowed to demand cuts to Social Security and Medicare in return for their cooperation in raising the debt ceiling next year. To be clear, that’s Republicans saying they will crash the U.S. economy to force President Joe Biden to give into their demands.
Now would-be House Speaker Kevin McCarthy has confirmed that yes, that’s exactly what Republicans intend to do. That continues to generate yawns from the super savvy reporters in D.C. and New York, who largely ignored the first reports of this threat. Now they’re continuing to try to downplay it. But it’s as real and as dangerous as can be.
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