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AnalysisUS heads for debt-ceiling standoff as House Republicans refuse to budgeJoan E GreveHard-right Republicans say no to ‘clean’ debt ceiling increase, raising dire possibility of US defaulting on financial obligations The US economy could be headed for a crisis manufactured by a handful of House Republicans.The treasury secretary, Janet Yellen, informed congressional leaders on Thursday that the US has hit its debt ceiling, which limits the amount of money that the government can borrow to pay all of its bills. Yellen urged Congress to work as quickly as possible to raise the debt ceiling and prevent the US from defaulting on any of its financial obligations, which would have catastrophic consequences.What is the US debt ceiling and what happens if it isn’t raised?Read more“It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit,” Yellen warned in a letter sent last week. “Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability.”The dire language from the nation’s top economic official underscored the urgency of Congress’s task and appeared to represent an attempt to deter any lawmaker from toying with the idea of a default. Some House Republicans have chosen to do so anyway.Members of the hard-right House Freedom Caucus have already promised to oppose a “clean” debt ceiling increase, meaning a bill that raises the national borrowing limit without any other policy concessions.“We cannot raise the debt ceiling,” the Arizona congressman Andy Biggs said on Tuesday. “Democrats have carelessly spent our taxpayer money and devalued our currency. They’ve made their bed, so they must lie in it.”Congresswoman Marjorie Taylor Greene, from Georgia, echoed that sentiment on Wednesday, telling Fox News: “I for one will not sign a clean bill raising the debt limit.”Setting aside the fact that individual members of Congress do not sign bills, the comments from lawmakers like Greene have intensified concerns over a potential default this summer. As of now, the treasury is deploying “extraordinary” measures to keep paying its bills, but those options may be exhausted as early as June.The US has never failed to raise or suspend its debt ceiling, so most Americans are probably unfamiliar with the potential consequences of a default. Experts fear that the crisis would force the treasury to essentially choose which of its creditors to pay, and those decisions would carry legal ramifications while financially harming any number of institutions that rely on government funding.“Doctors in hospitals who provide services to Medicare beneficiaries wouldn’t be getting paid what they’re owed,” said Paul van de Water, senior fellow at Center on Budget and Policy Priorities, a progressive thinktank. “Defense contractors wouldn’t be getting paid in their full amounts. Veterans wouldn’t receive the full benefits to which they’re entitled and on and on and on.”A failure to address the debt ceiling would simultaneously cause irreparable damage to the reputation of the US treasury, and that recalculation would trickle down to consumers.If Congress fails to raise the debt ceiling, it would trigger a “risk premium” for any financial transaction benchmarked to the treasury, said Gordon Gray, director of fiscal policy at the center-right thinktank American Action Forum. “And what’s benchmarked to the treasury? Pretty much every financial instrument that consumers have: your credit card, your mortgage,” Gray said. “Any number of interactions that the public has with financial markets would be affected by this.”For many economic experts, the looming crisis has sparked grim flashbacks to the 2011 standoff over the debt ceiling. At the time, Republicans had just regained control of the House and found themselves going toe to toe with Barack Obama over the debt ceiling. Republicans were demanding cuts in government spending in exchange for supporting a debt ceiling increase, leading to Democrats’ accusations that they were recklessly endangering the US economy to advance their own political agenda.The standoff ended with the passage of the Budget Control Act, which raised the debt ceiling and outlined significant cuts in government spending. Some House Republicans now appear to be hoping for similar spending cuts in exchange for a debt ceiling hike, escalating the risk of a default.Gray was as a policy adviser to former Republican senator Rob Portman when the 2011 crisis unfolded, and he expressed concern that the next debt ceiling fight could bring the US economy even closer to calamity.“I believe that the risks are heightened now in a way that they have not been certainly since 2011, and very possibly the risks are greater now than they were then,” he said.The protracted fight over the House speakership earlier this month only heightened Gray’s fears. Kevin McCarthy was elected speaker on the 15th ballot, following a days-long revolt from 20 members of the House Republican conference.“They couldn’t agree that the sky was blue for a week,” Gray said.“The individuals involved in that episode are the same folks who are signaling a disinclination to increase the debt limit.”McCarthy has indicated his interest in negotiating with the White House over a debt ceiling bill, downplaying concerns over a potential default.“We don’t want to put any fiscal problems on our economy and we won’t,” he said last week. “But fiscal problems would be continuing to do business as usual.”So far, Joe Biden has shown no willingness to entertain the idea of cutting government spending in exchange for raising the debt ceiling.“We are not going to be negotiating over the debt ceiling,” the White House press secretary, Karine Jean-Pierre, said on Tuesday. “This should not be a political football. And we should do it without conditions.”The demands from House Republicans strike Democrats as particularly outrageous because of their own bipartisan approach to the debt ceiling in the past. During Donald Trump’s presidency, Democrats worked with Republicans to suspend the debt ceiling three times. At the time, congressional Republicans made no attempt to lower government spending while addressing the debt ceiling.During Trump’s presidency, Republicans took a seemingly cavalier attitude when it came to reducing government debt. In 2017, Republicans passed the Tax Cuts and Jobs Act, even after the Congressional Budget Office projected that the legislation would increase the federal deficit by nearly $1.5tn over the following decade.“Clearly the approach that is taken seems to vary depending upon the political climate of the moment,” Van de Water said. As of now, it remains unclear how the latest debt ceiling standoff will resolve itself. The White House and the holdout Republican lawmakers have only reiterated their demands, and the clock is ticking to avoid severe economic tumult that could be felt worldwide.“Something’s got to give. Something’s going to give,” Gray said. “My hope is that it’s not the financial markets first.”TopicsUS CongressUS economyUS politicsnewsReuse this content More
JP Morgan chief says US should not be ‘playing games’ with debt ceilingJamie Dimon warns that US creditworthiness should be ‘sacrosanct’ as country’s debt races toward $31.4tn limit The US should not be “playing games” with the debt ceiling, the JP Morgan chief executive, Jamie Dimon, warned warring US political factions on Thursday as a heated row over the federal borrowing limit reached a crisis point.“We should never question the creditworthiness of the US government. That is sacrosanct and it should never happen,” Dimon said on Thursday in an interview on CNBC. “This is not something we should be playing games with at all.”Dimon’s comments came as the US treasury department announced later Thursday it would take steps to keep paying the federal government’s bills as the US hit its $31.4tn debt limit as expected.In a letter addressed to the Republican House speaker, Kevin McCarthy, the treasury secretary, Janet Yellen, said the department will suspend new investments in the civil service retirement and disability fund, as well as the postal service retiree health benefits fund until June.Yellen warned that moves were subject to “considerable uncertainty” if Congress does not pass a bill to increase the borrowing limit. Last week, she had sought to head off an impasse over the US’s borrowing that if breached could begin to seize up debt repayments and send shock waves throughout the US and global economies.What is the US debt ceiling and what happens if it isn’t raised?Read more“Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans and global financial stability,” Yellen told Congress.She said that the Biden administration would try to keep the country under that debt cap and able to finance its operations as long as possible by using “extraordinary measures” that involves shifting money and suspending investments in savings plans for government workers.In theory that could give lawmakers until June to come up with a solution, but Yellen also warned that the US treasury “is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations”.Political wrangling over US treasury debt, which has doubled in a decade, is a traditional battlefield for political parties. Since 1960, politicians have moved to raise, extend or revise the debt limit 78 times.The White House maintains that the ceiling should be increased without conditions and will not negotiate on the issue. Republicans are urging a “debt prioritization” plan that would seek to avert default.“We’re not going to default on the debt. We have the ability to manage servicing and paying our interest. But we similarly should not blindly increase the debt ceiling,” Representative Chip Roy, a leading conservative Republican, told Reuters.But Dimon, regarded as America’s most powerful and most forthright banker, warned against playing political football with the issue.“Of course Democrats will blame the Republicans and Republicans will blame the Democrats,” Dimon told CNBC. “I don’t care who blames who. Even questioning it is the wrong thing to do … That is just a part of the financial structure of the world. This is not something you should be playing games with at all.”TopicsUS economyJamie DimonEconomicsUS politicsnewsReuse this content More
ExplainerWhat is the US debt ceiling and what happens if it isn’t raised?The US treasury secretary warned ‘extraordinary measures’ will have to be put in place to prevent defaulting – here’s what that means for the government The US government will hit its borrowing limit – or the debt ceiling – on 19 January, the beginning of what looks to be a vicious fight over the government’s budget and one that threatens to worsen an already precarious economic outlook.The US treasury secretary, Janet Yellen, sent an ominous letter of warning to Congress last Friday that “certain extraordinary measures” will have to be put in place to prevent the United States from defaulting on its obligations” – essentially moving some money around so the government does not default just yet. Those measures will last a few months, but if the limit is ultimately not raised, the federal government will run out of funds.Here is more on the debt ceiling and what it means for the federal government.What is the debt ceiling?Congress has the ability to set a limit on how much the US government can borrow to pay for its expenses. This limit is called the debt ceiling, and right now the limit is $31.4tn. Borrowing money helps the federal government pay for expenses passed in its budgets, like social security and Medicare benefits and the salaries of US military service members.What happens if the debt ceiling isn’t raised?If Congress does not raise the debt ceiling in the coming months, things will quickly go south for the economy, Yellen warned.“Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability,” she wrote.If the federal government defaults on its loans, investors could lose faith in the US dollar, causing the US dollar to weaken, stocks to fall and triggering job cuts.Even if the debt ceiling is raised, a prolonged fight over it could still cause long-term financial harm. During a particularly vicious debt-ceiling battle in 2011, credit rating agency Standard & Poor downgraded the US government’s credit rating for the first time in history, making it more costly for the US government to borrow money thereafter.Why isn’t Congress raising the debt ceiling?Republicans have a fresh majority in the House, and they see the debt ceiling as a possible bargaining chip for negotiating spending cuts.House speaker Kevin McCarthy said on Fox News Sunday that reaching the debt ceiling is a test for the party on its commitment to cutting spending.“You couldn’t just keep increasing it,” he said. “Let’s sit down and change our behavior for the good of America. Because what we’re going to do is bankrupt this country and bankrupt these entitlements if we don’t change their behavior today.”The White House press secretary, Karine Jean-Pierre, said the administration will not be doing “any negotiations”.“It should be … done without condition,” she said.With Republicans holding onto the necessary votes needed to lift the ceiling, the fight to raise it could get ugly.In a joint statement, the Senate majority leader, Chuck Schumer, and the House minority leader, Hakeem Jeffries, said Democrats want to move quickly on passing a new debt ceiling.“We’ve seen in previous debt ceiling stand-offs that even the threat of default leads to even higher costs for working families,” they said. “Default forced by extreme Maga Republicans could plunge the country into a deep recession.”What do Republicans want?Exactly how much Republicans want to cut, and what they want to target, is still unclear. And while Republicans often rally against government spending, raising the debt ceiling funds government expenses that have already been passed by Congress. Not being able to borrow more money will put existing federal programs at risk.But Republicans, particularly the more conservative members of the party, are gearing themselves up for a battle over the ceiling.Some are even thinking Republicans can push for a payment prioritization plan that would call on the Biden administration to make only critical federal payments, like social security and Medicare. The Washington Post reported that McCarthy privately made a deal with conservative Republicans when he was fighting to get the speaker title to pass a prioritization plan in the first quarter of the year. The details of the plan are not set but make clear that Republicans are gunning for cuts.Responding to the Post’s report of the plan, the White House chief of staff, Ron Klain, tweeted that Republicans want to make “payments to wealthy foreign bondholders” in lieu of funding other federal programs like national parks and food stamps.Why does the debt ceiling exist?Experts have pointed out for years that there is no good reason why the debt ceiling exists and that raises should be routine. Few other nations have similar limits, and in recent history, it has largely been a political negotiating chip between parties – one that carries heavy consequences.What happens next?Expect months of wrangling and leaks. The Republican plan is not yet clear but it is clear that the newly empowered party – and especially its more conservative wing – wants to make its mark.Fights to raise the debt ceiling have led to government shutdowns in the past. The longest-ever shutdown was 35 days between 22 December 2018 and 25 January 2019 at a cost of $11bn – $3bn of which was permanent.So far stock markets do not seem to be rattled, suggesting investors think this is another war of words. Over the next few months, that could change.TopicsUS economyUS CongressUS politicsEconomicsexplainersReuse this content More
For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails Sign up to our free breaking news emails MPs have launched an inquiry after electric battery maker Britishvolt – hailed as a pioneering firm by Boris Johnson – collapsed into administration on Tuesday with the loss […] More
‘It’s been rough’: passengers weather another day of chaos at US airportsFrom weather disruptions to computer problems to crew shortages, customers are once again caught in travel limbo After an $8bn makeover, New York’s new LaGuardia airport complex is finally an airport the city can be proud of. Unfortunately the same can not be said for the industry it serves.For the second time in almost two weeks thousands of flights were canceled across the US on Wednesday – this time because of what appears to be a snafu with an antiquated computer system. Passengers have had enough.“It’s been rough this last couple of years,” said Deb Alexis, who had traveled to New York from Orlando. “The flight was great but now there’s stress because the bags haven’t come. Seems like there’s a lot of confusion and delays nowadays.”‘A wild Christmas eve’: strangers stranded by airline chaos team up for road tripsRead moreAsked if airline travel is becoming altogether too much trouble, Danny Dividu, on his way to Georgia when his Southwest plane was canceled, said simply: “Hell yes. Now I’ve got to go back upstairs to check in again. I usually go Greyhound. Best way to go. I hate flying. It’s too much hassle, always has been.”Another day, another crisis at US airports.It might have been the cascading weather-related disruptions the US experienced over the holidays, or computer issues, scheduling, pilot or crew shortages but the outcome was familiar: customers left in a helpless state of air travel limbo.Whatever the precise cause of Wednesday’s issues, they are part of a wider set of problems for travelers, airlines and the FAA, said Robert Mann, a former airline executive who now runs the consulting firm RW Mann & Company.“The FAA runs on hardware and software that is in many cases decades old,” he said. “And it’s a multi-year effort to build and install them.”Even a small, regional failure can have knock-on effects for the entire network, he said, but this “seems to be a system failure” and travelers could expect more issues unless something is done.The FAA estimates that delayed and canceled flights cost the US economy $33bn in 2019. “Everyone – the department of transportation, the general accounting office, Congress – agree that there is a significant cost to this but nobody does anything about it,” Mann said.Congress is set to debate the funding of the FAA this year and the hearings are expected to be heated. The FAA is currently without a leader and has been since last March.Biden has nominated Phillip Washington, currently the chief executive of Denver International Airport, to the position. But his nomination has been clouded by criticism of his lack of experience in the aviation industry and ties to a corruption scandal.With Republicans now in charge of the House, Biden’s nomination looks more uncertain and the latest mess will expose the transport secretary, Pete Buttigieg, to more criticism following the chaos at US airports over the holidays.After the flight restrictions were lifted, Buttigieg said his department was not ruling out the possibility that nefarious activity was to blame for the computer system outage.“We’re not prepared to rule that out,” Buttigieg said in an interview on MSNBC. “There is no direct indication of any kind of external or nefarious activity, but we are not yet prepared to rule that out,” Buttigieg said.After the incident senator Ted Cruz, the top Republican on the Senate committee on commerce, science and transportation, called for congressional reforms to the FAA.Southwest Airlines under investigation as more flights canceled after stormRead more“The flying public deserves safety in the sky,” the Texas senator said in a statement. “The administration needs to explain to Congress what happened, and Congress should enact reforms in this year’s FAA reauthorization legislation.”Wednesday’s incident, Cruz added, “highlights why the public needs a competent, proven leader with substantive aviation experience leading the FAA”.By mid-morning, the FAA issued its fifth bulletin. “Normal air traffic operations are resuming gradually across the United States following an overnight outage,” the agency said in a statement.By then, it was too late for many passengers. Jordan Cousins, 25, on his way to Nashville on Southwest from New York’s LaGuardia, said his Southwest flight had been delayed twice and then canceled entirely.“It’s this and then it’s that. You never know. You may have a smooth flight or there may be a problem. It may be at the counter, with the plane, or something,” he said. “Plans never go as planned.”TopicsAirline industryUS politicsNew YorkAir transportfeaturesReuse this content More
US flights resuming after FAA alert system outage causes disruptionThousands of flights delayed because of problem with system that alerts pilots about hazards or changes at airports Domestic flights across the US were temporarily grounded on Wednesday morning, after an IT failure in a critical aviation safety system.The Federal Aviation Administration (FAA) said that the system that alerts pilots and airlines about any hazards was not functioning. The breakdown led to more than 7,800 flights being delayed and 1,200 being canceled , the flight tracking website FlightAware showed. The ground stop was lifted at 9am with the FAA declaring that operations were “resuming gradually across the United States”, but travelers were still left facing another chaotic day of air travel following severe disruptions over the holiday period.“They don’t know what the cause is,” Joe Biden told reporters after speaking to the transportation secretary, Pete Buttigieg. “Aircraft can still land safely, just not take off right now. They don’t know what the cause of it is, they expect in a couple of hours they’ll have a good sense of what caused it and will respond at that time.”The White House said there was no evidence of a cyber-attack but the causes of the IT failure would be investigated in full by the Department of Transportation.International US-bound flights were continuing to take off from Europe and elsewhere.The aviation regulator said its Notam (Notice to Air Missions) system had “failed” and it was working to restore it.It said: “While some functions are beginning to come back on line, National Airspace System operations remain limited.”The FAA said it had “ordered airlines to pause all domestic departures until 9am ET to allow the agency to validate the integrity of flight and safety information”.Jordan Cousins, 25, on his way to Nashville on Southwest Airlines from New York’s LaGuardia, said his flight had been delayed twice and then canceled entirely.“I’ve been here since 7am and this pushes back everything I was trying to do. First I thought it was a cyber-attack, but they said it was some kind of malfunction. So I had all sorts of curiosities,” he said.Crowley said he had noticed that US air travel had become precarious.“Travelling is coming a bit of a hassle. It’s this and then it’s that. You never know. You may have a smooth flight or there may be a problem. It may be at the counter, with the plane, or something,” he said. “Plans never go as planned.”The White House press secretary, Karine Jean-Pierre, said: “There is no evidence of a cyber-attack at this point, but the president directed [the Department of Transportation] to conduct a full investigation into the causes. The FAA will provide regular updates.”Wednesday’s chaos came after a troubled holiday season for air travelers. Bad weather led to the cancellation of thousands of flights, a situation compounded by issues at Southwest Airlines that led to the cancellation of thousands more.More than 20,000 flights were scheduled to depart airports in the US on Wednesday, according to aviation analytics firm Cirium, with almost 2.9m seats.The delays affected carriers around the US. American Airlines, the biggest carrier by volume, said it was working with the FAA to minimise disruption. United Airlines said it had paused all domestic flights.A Notam is a notice containing information essential to personnel concerned with flight operations, but not known far enough in advance to be publicised by other means.Information can go up to 200 pages for long-haul international flights and may include items such as runway closures, general bird hazard warnings or low-altitude construction obstacles.TopicsAir transportUS politicsnewsReuse this content More
Trump, Bankman-Fried and Musk are the monsters of American capitalismRobert ReichFor them, and for everyone who still regards them as heroes, there is no morality in business or economics. The winnings go to the most ruthless If this past week presents any single lesson, it’s the social costs of greed. Capitalism is premised on greed but also on guardrails – laws and norms – that prevent greed from becoming so excessive that it threatens the system as a whole.Yet the guardrails can’t hold when avarice becomes the defining trait of an era, as it is now. Laws and norms are no match for the possibility of raking in billions if you’re sufficiently ruthless and unprincipled.Donald Trump’s tax returns, just made public, reveal that he took bogus deductions to reduce his tax liability all the way to zero in 2020. All told, he reported $60m in losses during his presidency while continuing to pull in big money.Every other president since Nixon has released his tax returns. Trump told America he couldn’t because he was in the middle of an IRS audit. But we now learn that the IRS never got around to auditing Trump during his first two years in office, despite being required to do so by a law dating back to Watergate, stating that “individual tax returns for the president and the vice-president are subject to mandatory review”.Of course, Trump is already synonymous with greed and the aggressive violation of laws and norms in pursuit of money and power. Worse yet, when a president of the United States exemplifies – even celebrates – these traits, they leach out into society like underground poison.Meanwhile, this past week the SEC accused Sam Bankman-Fried of illicitly using customer money from FTX from the beginning to fund his crypto empire.“From the start, contrary to what FTX investors and trading customers were told, Bankman-Fried, actively supported by Defendants, continually diverted FTX customer funds … and then used those funds to continue to grow his empire, using billions of dollars to make undisclosed private venture investments, political contributions, and real estate purchases.”If the charge sticks, it represents one of the largest frauds in American history. Until recently, Bankman-Fried was considered a capitalist hero whose philanthropy was a model for aspiring billionaires (he and his business partner also donated generously to politicians).But like the IRS and Trump, the SEC can’t possibly remedy the social costs that Bankman-Fried has unleashed – not just losses to customers and investors but a deepening distrust and cynicism about the system as a whole, the implicit assumption that this is just what billionaires do, that the way to make a fortune is to blatantly disregard norms and laws, and that only chumps are mindful of the common good.Which brings us to Elon Musk, whose slash-and-burn maneuvers at Twitter might cause even the most rabid capitalist to wince. They also raise questions about Musk’s other endeavor, Tesla. Shares in the electric vehicle maker dropped by almost 9% on Thursday as analysts grew increasingly concerned about its fate. Not only is Musk neglecting the carmaker but he’s appropriating executive talent from Tesla to help him at Twitter. (Tesla stock is down over 64% year-to-date.)Musk has never been overly concerned about laws and norms (you’ll recall that he kept Tesla’s factory in Fremont, California, going during the pandemic even when public health authorities refused him permission to do so, resulting in a surge of Covid infections among workers). For him, it’s all about imposing his gargantuan will on others.Trump, Bankman-Fried and Musk are the monsters of American capitalism – as much products of this public-be-damned era as they are contributors to it. For them, and for everyone who still regards them as heroes, there is no morality in business or economics. The winnings go to the most ruthless. Principles are for sissies.But absent any moral code, greed is a public danger. Its poison cannot be contained by laws or accepted norms. Everyone is forced to guard against the next con (or else pull an even bigger con). Laws are broken whenever the gains from breaking them exceed the penalties (multiplied by the odds of getting caught). Social trust erodes.Adam Smith, the so-called father of modern capitalism, never called himself an economist. He called himself a “moral philosopher,” engaged in discovering the characteristics of a good society. He thought his best book was not The Wealth of Nations, the bible of modern capitalist apologists, but the Theory of Moral Sentiments, where he argued that the ethical basis of society lies in compassion for other human beings.Presumably Adam Smith would have bemoaned the growing inequalities, corruption, and cynicism spawned by modern capitalism and three of its prime exemplars – Trump, Bankman-Fried, and Musk.TopicsUS newsOpinionUS politicsUS taxationDonald TrumpSam Bankman-FriedFTXUS economycommentReuse this content More
