Is it the Biden default? Or the Republican Default on America? Even as negotiators push forward with halting talks to resolve the federal debt-ceiling standoff, members of both parties are positioning themselves to try to dodge the blame for the economic fallout if things go south. Democrats lambaste Republicans for taking the debt ceiling hostage to appease “extreme MAGA” conservatives bent on shrinking government spending. Republicans hit Democrats for waiting too long to open talks and not taking G.O.P. demands seriously. But deep down — and in some cases not so deep — officials in both parties know they are all going to pay if they don’t get a deal, the government defaults and Americans lose money and jobs and confidence about their financial well-being and future.
“I would hate to be the politician trying to explain to people when the economy is in the toilet that it’s not my fault, it’s their fault,” said Senator Lindsey Graham, Republican of South Carolina. “Yeah, that ain’t going to work. They will flush us all.” Polls have suggested Mr. Graham’s view is correct. A Washington Post-ABC News Poll released earlier this month shows that the public is divided about who will bear the blame, with a significant chunk of independents saying the two sides should share it equally.
The two parties can continue to trade shots. But until they trade negotiating positions they can come to terms on, the threat of default hangs over Washington and the nation. And if that happens, those involved may find that the public won’t distinguish between who did or said what when, but will hold them all accountable.
https://www.nytimes.com/2023/05/19/us/p ... onomy.html
Prolonged debt-ceiling squabbling could push the U.S. economy into recession, while a government default on its obligations might touch off a severe financial crisis. U.S. lawmakers are negotiating over raising the federal government’s borrowing limit and may have just days to act before the standoff reverberates through the economy. in a worst-case scenario, a failure to pay holders of U.S. government debt, a linchpin of the global financial system, could trigger severe recession and send stock prices plummeting and borrowing costs soaring. Many economists don’t expect a default for the first time in U.S. history. But they outline three potential ways the standoff could affect the economy and financial system, ranging from not great to extremely scary. The economy is already slowing due to rising interest rates, with many forecasters expecting a recession this year. While lawmakers haggle, uncertainty could cause consumers, investors and businesses to retrench, increasing the chances of a recession, said Joel Prakken, chief U.S. economist at S&P Global Market Intelligence. Workers aren’t likely to lose their jobs, but the unpredictability of the economic outlook could cause them to put off purchases.
If negotiations extend beyond Thursday June 1, economists expect a more severe reaction from financial markets, as the possibility for default looks more real.
“The shock would tend to accelerate quite rapidly” on June 1, said Gregory Daco, chief economist at Ernst & Young. If consumers’ retirement and investment accounts suddenly shrink, they could sharply curtail their spending, the lifeblood of the U.S. economy. Businesses could pause hiring and investment plans. There is a possible window between June 1 and any missed payments. Yellen wrote that the actual date Treasury exhausts its cash could be days or weeks later than estimated. The Bipartisan Policy Center projects Treasury to spend $622.5 billion in June while taking in $495 billion in tax revenue. The exact timing of those inflows and outflows impact cash reserves.
If no deal is reached and the government can’t pay all its bills for days or weeks, repercussions would be enormous. “There would be chaos in the global financial system because Treasurys are so important,” said Wendy Edelberg, an economist at the Brookings Institution. “What happens when that thing that everybody is benchmarking themselves to proves to be one of the riskiest things out there?” Ernst & Young’s Daco said a default would trigger a recession more severe than the 2007-09 downturn.
https://archive.fo/VbPmZ
Raising the debt limit is one of the highest levels of political drama, blame the other party and push negotiations to the brink. It happens every time the debt limit is raised, both parties relish the drama and paint the other party as devils. Biden and McCarthy could have started negotiating in February, but Biden didn't want to make cuts and McCarthy was and still is beholden to party extremists.
"Everyone is entitled to their own opinion, but not their own facts." - Daniel Patrick Moynihan