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 Warnings of economic catastrophe come as Congress prepares to debate debt ceiling

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Warnings of economic catastrophe come as Congress prepares to debate debt ceiling Empty
PostSubject: Warnings of economic catastrophe come as Congress prepares to debate debt ceiling   Warnings of economic catastrophe come as Congress prepares to debate debt ceiling EmptyFri Sep 17, 2021 12:32 pm

Warnings of economic catastrophe come as Congress prepares to debate debt ceiling
Fri, September 17, 2021, 8:35 AM

WASHINGTON (Reuters) -President Joe Biden's top aides and local officials nationwide pleaded with U.S. lawmakers on Friday to resolve a government debt showdown that they warned could spark an economic crisis.

Congress plans next week to consider legislation that would avoid a default ahead of an October deadline, when the Treasury Department estimates it will no longer be able to pay all of the country's bills.

The White House warned on Friday that a failure by the U.S. Congress to extend the debt limit could plunge the economy into a recession and lead the country to default on its payment obligations. A coalition of local elected officials, meanwhile, said a failure to resolve the issue could send ripple effects through credit markets and leave cities unable to fund healthcare and other services.

The dire warnings come as lawmakers appeared no closer to resolving a dispute between Biden, his fellow Democrats, and Republican lawmakers, who have declined to help lift the $28.5 trillion federal borrowing limit to pay for programs already authorized by Congress.

The U.S. House of Representatives is set to vote next week on a measure to resolve the showdown and a "continuing resolution" that could fund emergency spending on wildfire and hurricane disaster relief as well as the evacuation of refugees from Afghanistan, according to a letter from Majority Leader Steny Hoyer to colleagues.

A decision had not been made on whether to pair the debt ceiling and continuing resolution measures, according to a senior Democratic aide.

For months, Treasury Secretary Janet Yellen has urged Congress to act, saying cash and "extraordinary measures" being used to temporarily finance the government will run out next month. Some independent estimates see the deadline being in November.

Republicans, who lost control of the White House in the 2020 election, have balked and placed the potential crisis on Democrats' shoulders. Democrats hold control of the House and Senate by slim margins.

GRIM WARNINGS

A new White House fact sheet warned that the failure to come to an agreement could send ripples through U.S. financial markets and halt billions of dollars in aid for disaster relief efforts, infrastructure and education funding, not to mention the response to the COVID-19 pandemic.

"Economic growth would falter, unemployment would rise, and the labor market could lose millions of jobs," the White House said. "We expect Congress to act promptly."

The United States Conference of Mayors, a nonpartisan group representing 1,400 U.S. cities, added that "failure to increase the debt limit would send our economy into freefall" and that "this is no time to allow partisan politics to reverse the progress we've made."

Investors continue to bet that an increase or suspension of the debt ceiling will take place in time to avoid a default of any kind, but Goldman Sachs economists wrote in a note this week that the current go-round over the issue is "the riskiest debt-limit deadline in a decade."

A broad U.S. default would be unprecedented. U.S. government debt is considered a safe investment and a benchmark for financial contracts worldwide, but periodic partisan showdowns over the debt ceiling have raised doubts.

Goldman told its clients that the current deadline seems as risky as a 2011 standoff that led Standard & Poor's to lower its rating on U.S. sovereign debt and a 2013 crisis that coincided with a partial shutdown of the government.

Early signs of concern have begun to emerge in the Treasury market, with modest premiums seen in yields for bills due to mature in October and early November.

"The markets are assigning a small chance of problems," said Guy LeBas, chief fixed income strategist at Janney, an investment bank.

(Reporting by Trevor Hunnicutt, David Morgan, Susan Heavey, Dan Burns, Rodrigo Campos, Steve Holland and Susan Cornwell; Writing by Trevor Hunnicutt; Editing by Raissa Kasolowsky, Chizu Nomiyama and Andrea Ricci)


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Warnings of economic catastrophe come as Congress prepares to debate debt ceiling Empty
PostSubject: McConnell’s Refusal to Raise Debt Ceiling Could Cost 6 Million Jobs.   Warnings of economic catastrophe come as Congress prepares to debate debt ceiling EmptyWed Sep 22, 2021 7:17 pm

9-22-2021

Report: McConnell’s Refusal to Raise Debt Ceiling
Could Cost 6 Million Jobs.

If Republicans make good on their threats to
allow the U.S. to default on loan payments after refusing
to raise the debt ceiling,
economists warn in no uncertain terms that
a subsequent economic downturn could be disastrous
and “cataclysmic”

if Congress reaches a debt impasse.

A new analysis by Moody’s Analytics found that
if Republicans shoot down an attempt to raise the
debt ceiling and lawmakers enter an extended
period in which they can’t agree on how to avert
a government shutdown, it could trigger economic
conditions similar to the Great Recession in 2008.


Moody’s Analytics chief economist Mark Zandi
and assistant director Bernard Yaros wrote that this
scenario would lead to the loss of nearly 6 million
jobs in the U.S.
It would also cause unemployment to surge from about
5 percent to 9 percent and household wealth
to plummet by $15 trillion.

Even after the government reopened, it would have
permanent consequences like
spiking mortgage and
other borrowing rates, they warn in the report.

“This economic scenario is cataclysmic,”
Yaros and Zandi said.
“[T]he downturn would be comparable to that
suffered during the financial crisis.”

Even a short government shutdown could “upend”
global markets and the economy, which is still fragile
from the pandemic —
and even if the debt default and shutdown are
swiftly resolved, the resulting higher
interest rates on Treasury bonds would
still have lasting, generational effects,
Yaros and Zandi wrote.

Currently, if lawmakers fail to raise the debt limit,
the Treasury Department wouldn’t be able to pay
debts.
The agency would be forced to either default on
the debts, which Moody’s estimates would come
due around October 20, or pay the $20 billion it
owes that day to Social Security recipients.
If the shutdown continued further, the Treasury
would be forced to make other similar decisions.

Treasury Secretary Janet Yellen has also warned
of high stakes if the U.S. has to default, which
she says would be unprecedented.
“Doing so would likely precipitate a historic financial crisis
that would compound the damage of the continuing
public health emergency,” she wrote Sunday.

The shutdown and default is an easily avoidable scenario in theory. Congress could simply come together and raise the debt ceiling, as it has done many times before, often under Republican leadership. In fact, under Donald Trump, Republicans added nearly $8 trillion to the national debt, the third largest addition
to the national debt of any president.

However, now that a Democrat is in charge, Republicans have transformed back into deficit hawks. Sen. Mitch McConnell (R-Kentucky) is saying that he opposes allowing the U.S. to default, but is aligning Republicans to refuse to vote to raise the debt ceiling — which is essentially voting to allow the U.S. to default.

“McConnell seemingly could not care less” about creating
financial chaos, wrote Truthout’s William Rivers Pitt.
“His interest appears entirely political
and utterly without shame:

He wants his people to go into the 2022 midterms with
‘tax-and-spend liberals’ on every tongue.
The same Republicans who aided the Trump administration’s
wild financial giveaways to corporations and the wealthy now intend to
use the economy itself against President Biden’s
legislative attempt to address climate change
and expand the social safety net, and all as a
means of regaining the majority.”

If Republicans follow through with this plan,
it would not be their first time throwing the
country into financial chaos for political gain
and obstruction.

Under President Barack Obama, they caused major fights over the debt limit in 2011 and again in 2013, which created long-term negative consequences for the economy, the report’s authors noted.

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