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      US government hits debt ceiling as Biden and House Republicans face off

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      US government hits debt ceiling as Biden and House Republicans face offTreasury secretary says department will take ‘extraordinary measures’ to skirt default while also urging Congress to act The US government has hit the ceiling on its debt, brushing up against its legal limit of $38.381tn and piling pressure on Congress to approve an increase to avoid a debt default in the coming months that would send a shock wave through the global economy.In a letter to congressional leaders, the treasury secretary, Janet Yellen, said it would begin taking “extraordinary measures” to make the government’s cash on hand last until Congress acts. These include a “debt issuance suspension period” lasting from today until 5 June, as well as suspending investments into two government employee retirement funds.JP Morgan chief says US should not be ‘playing games’ with debt ceilingRead more“As I stated in my January 13 letter, the period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the US government months into the future. I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Yellen wrote.The countdown toward a possible US government default puts the spotlight on frictions between President Joe Biden and House Republicans, raising alarms about whether the US can sidestep a potential economic crisis.An artificially imposed cap, the debt ceiling has been increased roughly 80 times since the 1960s. The government can temporarily rely on accounting tweaks to stay open. Any major threats to the economy would be several months away.But with the House speaker, Kevin McCarthy, presiding over a restive Republican caucus, there are concerns that the government could default on its obligations for political reasons.Biden insists on a “clean” increase to the debt limit so that existing financial commitments can be sustained and is refusing to even start talks with Republicans. McCarthy is calling for negotiations that he believes will lead to spending cuts. It’s unclear whether enough fellow Republicans would support any deal after a testy start to the new Congress that required 15 rounds of voting to elect McCarthy as speaker.The White House press secretary, Karine Jean-Pierre, said it was the “constitutional responsibility” of Congress to protect the full faith and credit of the United States.McCarthy said Biden needs to recognize the political realities that come with a divided government. The speaker has called for spending cuts of a kind that did not occur under President Donald Trump, a Republican who in 2019 signed a bipartisan suspension of the debt ceiling.The Senate Republican leader, Mitch McConnell, said on Thursday in Louisville, Kentucky, that he was unconcerned about the situation because debt ceiling increases are “always a rather contentious effort”.“America must never default on its debt,” McConnell said. “We’ll end up in some kind of negotiation with the administration over what are the circumstances or conditions under which the debts are going to be raised.”Any deal would need to pass the Democratic-run Senate. “There should be no political brinkmanship with the debt limit,” said the Senate majority leader, Chuck Schumer, a Democrat from New York. “It’s reckless for Speaker McCarthy and Maga Republicans to try and use the full faith and credit of the United States as a political bargaining chip.”In order to keep the government open, the treasury department on Thursday was making a series of accounting maneuvers that would put a hold on contributions and investment redemptions for government workers’ retirement and healthcare funds, giving the government enough financial space to handle its day-to-day expenses until roughly June.What happens if these measures are exhausted without a debt limit deal is unknown. A prolonged default could be devastating, with crashing markets and panic-driven layoffs if confidence evaporates in a cornerstone of the global economy, the US treasury notes.The government would have to balance its books on a daily basis if it lacks the ability to issue debt, and it would have to impose cuts equal in size on an annual basis to 5% of the total US economy.Analysts at Bank of America cautioned in a report last week that “there is a high degree of uncertainty about the speed and magnitude of the damage the US economy would incur”.Markets so far remain relatively calm, given that the government can temporarily rely on accounting tweaks to stay open and any threats to the economy would be several months away. Even many worried analysts assume there will be a deal.TopicsUS economyJanet YellenEconomicsUS politicsRepublicansDemocratsnewsReuse this content More

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      JP Morgan chief says US should not be ‘playing games’ with debt ceiling

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      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

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      What is the US debt ceiling and what happens if it isn’t raised?

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      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

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      Treasury secretary: US to reach debt ceiling on Thursday

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      Treasury secretary: US to reach debt ceiling on ThursdayJanet Yellen told Congress that ‘extraordinary measures’ would be taken to avoid default until legislation is passed to raise ceiling Janet Yellen, the US treasury secretary, has notified Congress that the US is projected to reach its debt limit on Thursday, 19 January, and will then resort to “extraordinary measures” to avoid default.In a letter to House and Senate leaders on Friday, Yellen said her actions will buy time until Congress can pass legislation that will either raise the nation’s $31.4tn borrowing authority or suspend it again for a period of time.US prices drop for first time since May 2020 as inflation rate falls to 6.5%Read moreShe urged lawmakers to act quickly to raise the debt ceiling to “protect the full faith and credit of the United States”.“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 said.Republicans now in control of the House have threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration. This has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle of 2011, which prompted the brief downgrade of the US credit rating and years of forced domestic and military spending cuts.The Washington Post reported late on Friday that House Republicans had prepared an emergency plan for breaching the debt limit. The proposal, which was in the preliminary stages of being drafted, would direct the treasury department to prioritize certain payments if the US hits the debt ceiling, according to the newspaper.The White House said on Friday after Yellen’s letter that it will not negotiate over raising the debt ceiling.“This should be done without conditions,” White House spokesperson Karine Jean-Pierre told reporters. “There’s going to be no negotiation over it.”The new House speaker, Kevin McCarthy, told reporters in his first press conference that he had a “very good conversation” with Biden about the coming debt ceiling debate. “We don’t want to put any fiscal problems to our economy and we won’t, but fiscal problems would be continuing to do business as usual,” he said.“We’ve got to change the way we are spending money.”The proposal from House Republicans reported by the Washington Post would call on the Biden administration to make only the most critical federal payments if the treasury department comes up against the statutory limit on what it can legally borrow. The plan will call on the department to keep making interest payments on the debt, the newspaper reported, citing sources.House Republicans’ payment prioritization plan may also stipulate that the treasury department should continue making payments on social security, Medicare and veterans benefits, as well as funding the military, the newspaper added.Yellen said that while the treasury can’t estimate how long the extraordinary measures will allow the US to continue to pay the government’s obligations, “it is unlikely that cash and extraordinary measures will be exhausted before early June.”The treasury department first used extraordinary measures in 1985 and at least 16 times since, according to the Committee for a Responsible Federal Budget, a fiscal watchdog. Those measures include divesting some payments, such as contributions to federal employees’ retirement plans, in order to provide some headroom to make other payments that are deemed essential.Past forecasts suggest a default could instantly bury the country in a deep recession, right at a moment of slowing global growth as the US and much of the world face high inflation because of the pandemic and Russia’s invasion of Ukraine. The financial markets could crash and several million workers could be laid off, and the aftershocks would be felt for years.Shai Akabas, director of economic policy at the Bipartisan Policy Center, told reporters Friday: “This is not the time for panic, but it’s certainly a time for policymakers to begin negotiations in earnest.”“Most policymakers agree that we have a major fiscal challenge as a country, our debt is unsustainable,” he said. “There’s no reason why we couldn’t agree on measures to improve our fiscal outcome, and also ensure that we are paying all of our bills in full and on time.”TopicsJanet YellenUS economyUS CongressUS politicsEconomicsnewsReuse this content More

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      The US should break up monopolies – not punish working Americans for rising prices | Robert Reich

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      The US should break up monopolies – not punish working Americans for rising pricesRobert ReichThe Fed is putting people out of work to reduce workers’ bargaining power and reduce inflation. They’ve got it all wrong Job growth and wages are slowing. Employers added 223,000 jobs in December, the labor department reported on Friday – lower than the average in recent months.Average hourly wages rose by 4.6% in December, according to Friday’s report. That’s a slowdown from 4.8% in November.All this is music to the ears of Federal Reserve chair Jerome Powell, because the Fed blames inflation on rising wages. The Fed has been increasing interest rates to slow the economy and thereby reduce the bargaining power of workers to get wage gains.At his press conference on 14 December announcing the Fed’s latest interest rate hike, Powell warned that “the labor market remains extremely tight, with the unemployment rate near a 50-year low, job vacancies still very high, and wage growth elevated”.But aren’t higher wages a good thing?The typical American worker’s wage has been stuck in the mud for four decades.Most of the gains from a more productive economy have been going to the top – to executives and investors. The richest 10% of Americans now own more than 90% of the value of shares of stock owned by Americans.Powell’s solution to inflation is to clobber workers even further. He says “the labor market continues to be out of balance, with demand substantially exceeding the supply of available workers”.But if the demand for workers exceeds the supply, isn’t the answer to pay workers more?Not according to Powell and the Fed. Their answer is to continue to raise interest rates to slow the economy and put more people out of work, so workers can’t get higher wages. That way, “supply and demand conditions in the labor market [will] come into better balance over time, easing upward pressures on wages and prices,” says Powell.Putting people out of work is the Fed’s means of reducing workers’ bargaining power and the “upward pressures on wages and prices”.The Fed projects that as it continues to increase interest rates, unemployment will rise to 4.6% by the end of 2023 – resulting in more than 1m job losses.But fighting inflation by putting more people out of work is cruel, especially when America’s safety nets – including unemployment insurance – are in tatters.As we saw at the start of the pandemic, because the US doesn’t have a single nationwide system for getting cash to jobless workers, they have to depend on state unemployment insurance, which varies considerably from state to state.Many fall through the cracks. When the pandemic began, fewer than 30% of jobless Americans qualified for unemployment benefits.The problem isn’t that wages are rising. The real problem is that corporations have the power to pass those wage increases – along with record profit margins – on to consumers in the form of higher prices.If corporations had to compete vigorously for consumers, they wouldn’t be able to do this. Competitors would charge lower prices and grab those consumers away.Corporations aren’t even plowing their extra profits into new investments that would generate higher productivity in the future. They’re buying back their shares to boost stock prices. Through the end of 2022, American firms announced stock buybacks exceeding $1tn.A rational response to inflation, therefore, would not increase unemployment in order to reduce the bargaining power of workers to get higher wages.It would be to reduce the pricing power of corporations to pass those costs along to consumers along with rising profit margins, by making markets more competitive.Corporate pricing power is out of control because corporations face so little competition.Worried about sky-high airline fares and lousy service? That’s largely because airlines have merged from 12 carriers in 1980 to four today.Concerned about drug prices? A handful of drug companies control the pharmaceutical industry.Upset about food costs? Four giants now control over 80% of meat processing, 66% of the pork market, and 54% of the poultry market.Worried about grocery prices? Albertsons bought Safeway and now Kroger is buying Albertsons. Combined, they would control almost 22% of the US grocery market. Add in Walmart, and the three brands would control 70% of the grocery market in 167 cities across the country.And so on. The evidence of corporate concentration is everywhere.It’s getting worse. There were over a thousand major corporate mergers or acquisitions last year. Each had a merger value of $100m or more. The total transaction value was $1.4tn.The government must stop putting the responsibility for fighting inflation on working people whose wages have gone nowhere for four decades.Put the responsibility where it belongs – on big corporations with power to raise their prices.One possibility: any large corporation in an industry dominated by five or fewer giant corporations that raises its prices more than the Fed’s target of 2% should be presumed to have monopoly power, and slammed with an antitrust lawsuit.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California, Berkeley, and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
      TopicsUS economyOpinionUS politicsInflationEconomicsFederal ReservecommentReuse this content More

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      FO° Explainers: Is a Global Recession Coming?

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

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      Is a Global Recession Coming?

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

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      Digital democracy in Indonesia: an Asian Giant in Constant Transformation

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More