There is not much progress in the United States this weekend around debt ceiling legislation and potential government shutdown. Republican Senate Leader Mitch McConnell reiterated yesterday that Republicans will not vote to raise the debt ceiling. Senate Majority Leader Chuck Schumer tabled the House bill yesterday for a vote on Monday, which would keep federal agencies open until December. However, the vote comes just before government spending expires on September 30 which would trigger a shutdown and is almost certain to be blocked by the GOP (Republican Party). Punchbowl News said Democrats would then have to decide on next steps, which could include raising the debt limit on their own or including it as part of a separate ‘reconciliation’ plan.
The Wall Street Journal noted yesterday that House Speaker Nancy Pelosi had hinted Democrats could decouple government funding from the debt ceiling for fear there was not enough time. to insert the suspension of the debt ceiling into the reconciliation bill. After funding potentially expires next week, Treasury Secretary Janet Yellen warned borrowing capacity would be exhausted in October without an increase in the debt ceiling.
The market consensus appears to be that the US Congress will avoid a government shutdown and come to an agreement to raise or suspend the debt ceiling. However, economists and policy makers are increasingly warning of high uncertainty and the associated aggregate risk. Regarding the potential impact on the market, Goldman Sachs said U.S. government shutdowns generally did not have a significant impact on stock performance. Historical data shows no significant impact on the S&P of closures or recent confrontations over the debt ceiling issue.
Moody’s rating agency has warned, however, that the ‘failure to raise’ the debt limit could sink stocks … by nearly a third, wiping out nearly $ 15 trillion in wealth and costing up to $ 15 trillion in wealth. to 6 million jobs to the economy, which would increase the unemployment rate to around 9% …
Like Treasury Secretary Janet Yellen, Moody’s Analytics criticizes the “dangerous game” currently being played in Congress on this issue of the debt ceiling. The Biden administration and Congress have a lot to resolve in the coming weeks, between massive legislative efforts to increase infrastructure spending and tax support for a range of social and climate change programs. “But more urgently, Congress has a September 30 deadline to renew the expiring government spending authorization for fiscal year 2022 which begins October 1. Failure to do so would result in a government shutdown. There’s the Treasury debt limit, which was reinstated on August 1 of this year. Unable to borrow more, the Treasury used its available cash to pay its bills, but by mid-October to the end of October , these funds will be exhausted, “warns Moody’s.
The government shutdown would not be an immediate blow to the economy, but a default would be “a catastrophic blow to the nascent economic recovery after the Covid-19 pandemic,” the agency adds. “Global financial markets and the economy would be turned upside down, and even if resolved quickly, Americans would pay for this default for generations, as global investors would rightly believe that federal government finances have been politicized and that Perhaps a time would come when they would not be paid for what is owed to them. To offset this risk, they would demand higher interest rates on the Treasuries they buy. This would exacerbate our long-term fiscal challenges. term and would affect the economy in the long term (…) “, imagines Moody’s …
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