US Debt Ceiling Crisis

[harrybarracuda]

So a common theme across various news sources is that failure to agree an increase in the US debt ceiling could be at the very least a shock to the global financial system. There seems to be a consensus that shares will probably drop in the region of 20% even if there is only a short interruption.

The BBC have a summary here.

A simple guide to debt ceiling, and what the 14th amendment has to do with it - BBC News

Any of our educated members care to elucidate, particularly ones who might have worked in related fields and seen the effects of these standoffs before?

[harrybarracuda]

WASHINGTON, May 25 — The Biden administration said Wednesday that it still sees a path to a deal with Republicans on avoiding a “catastrophic” US debt default, as negotiators huddled in the White House.

Talks — which until now had taken place on Capitol Hill — moved to the White House on Wednesday, as the clock ticked down on what the Treasury Department says is a June 1 “X-date” for the government to run out of money and trigger likely devastating economic upheaval.

There was little concrete sign that the two sides were finding agreement on how to raise the so-called debt ceiling, authorising the government to borrow more money and keep paying its bills beyond June 1.

https://www.malaymail.com/news/world...t-crisis/70859

[harrybarracuda]

How the left see it:

How the right see it:

[david44]

The politics are partisan , Denmark is one of the few modern democracies to have a "theoretical limit" which is agreed after debate in the Folketing parliament and then the usually centrist coalition agrees to pay the nation's bills.

What we have here is one of those embarrassing after the bill arrives squabbles like at a student Pizzeria and who had most toppings.Then a bully shouts if you don't do what I want you won't get a lift through the snow in my car etc.

Confidence, Bonds and yields

Like virginity once confidence lost unrecoverable

Janet Yellen had sent out the dire warnings and sensible realists in GOP looked over the edge and recoiled

Real world prices of June treasuries already altered, though I feel confident an accommodation will be achieved after much posturing, gritting of teeth and wrangling in the ego filled rooms of the Congress

Short term (weeks only)

US may defer payments internally rather than default on Chinese and Japanese bond holders which would be counter productive

Creative accounting , closing National Parks etc has been done before

I am sure all the pollies will want this done and dusted before heading off to their holiday homes

The Nightmare

1. A default
2. Almost immediate global shock wave on equities various figures bandied about in 15-30% range, even serious people like Nouriel Roubini see it as insanity
3 US debt is lodged as security on loans so many firms will have to provide extra security leading to immediate cashflow issues, standstill, furloughs layoffs or in worst case bankruptcy. Thie share prices equity and dividends/bonuses evaporate
4 External reputation foreigners will still need dollars and treasuries in the medium term but will require better terms
5 USA may lose another notch on sovereign ratings, this is highly significant.
6 Some lunatic Republicans may wish to promote chaos to undermine Biden and promote Trump, they are largely economically illiterate.
7 There are many inter connected aspects of a "Credit Event"
8 For US poor and soon to be unemployed , default on rent and mortgages a disaster, for already hard hit like people of Sri Lanka a nightmare



Some background for the general reader

Fitch puts US rating on negative watch as debt deadline ...


Reutershttps://www.reuters.com › markets › fitch-puts-us-negati...6 days ago — Fitch now predicts that the U.S. government will spend more than it earns, creating a deficit of 6.5% of the country's total economy in 2023 and ...

• 
  Moody's changes outlook on U.S. banking system to ' ...
  
  https://www.reuters.com › business › finance › moodys-c...Moody's Investors Service on Tuesday revised its outlook on the U.S. banking system to "negative" from "stable", citing heightened risks
  
  
  
  
  

The cfr analysis is clear and simple

http://www.cfr.org/backgrounder/what...s-debt-ceiling

http://apnews.com/article/debt-limit...7176fc8d59eff0

https://www.project-syndicate.org/on...tical-timebomb

I sincerely hope and believe this will not come to pass, if it does we will all know and right sharp and witness the lunatics have taken over the asylum, the same folks who pray after their NRA chums gun down some schoolyard , ban women's rights to choose, oppose gays, native American rights, blacks, brown people and immigrants of any hue, in shorthand the Trumpanzees

[harrybarracuda]

Well that's the hard bit done. I suppose it remains to be seen if any Democrats are dumb enough to fuck it up from this point.

A divided US House of Representatives passed a bill to suspend the $31.4 trillion debt ceiling on Wednesday, with majority support from both Democrats and Republicans to overcome opposition led by hardline conservatives and avoid a catastrophic default.
The Republican-controlled House voted 314-117 to send the legislation to the Senate, which must enact the measure and get it to President Joe Biden's desk before a Monday deadline, when the federal government is expected to run out of money to pay its bills.
"This agreement is good news for the American people and the American economy," Biden said after the vote. "I urge the Senate to pass it as quickly as possible so that I can sign it into law."
The measure, a compromise between Biden and House Speaker Kevin McCarthy, drew opposition from 71 hardline Republicans. That would normally be enough to block partisan legislation, but 165 Democrats - more than the 149 Republicans who voted for it - backed the measure and pushed it through.

US debt ceiling bill passes House with broad bipartisan support - India Today

[harrybarracuda]

As the threat of a financial default nears, the Senate has started debate on compromise, bipartisan legislation to lift the debt ceiling with just days to spare.
Senate Majority Leader Chuck Schumer kicked off the legislative session on Thursday by warning senators they would stay until they voted on the measure.
"The bill is now in the Senate, where we begin the process today of passing this legislation as soon as possible," Schumer said. "The Senate will stay in session until we send a bill avoiding default to President Biden's desk. We will keep working until the job is done."

Senate opens debate to vote on compromise bill to raise debt limit : NPR

[harrybarracuda]

Senate begins process to pass debt limit bill tonight

The US Senate has begun the process of passing the debt limit bill to avert a US default.
Senators will first vote on 11 proposed amendments, which are all expected to fail, before voting on the final bill.
The bill needs 51 votes to pass the Senate. If passed, the bill will then be sent to President Joe Biden's desk to be signed into law.
In addition to suspending the debt limit through January 1, 2025, the bill caps non-defense spending, expands work requirements for some food stamp recipients and claws back some Covid-19 relief funds.
Read more about what's in the bill here.

https://edition.cnn.com/politics/live-news/us-debt-ceiling-senate-vote-06-01-23/index.html