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इंडियन आवाज़     21 May 2024 02:21:45      انڈین آواز

US Congress returns to discuss and avert Government Shut Down as US debt rises to $33 trillion

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By TN Ashok

Washington: The US National debt has crossed $33 trillion threatening a government shutdown month end as Congress grapples with monetary issues with Democrats and Republicans split and wrestle over spending cuts and Wall Street in New York goes on the defensive.

With the US national debt breaching the $33 trillion limit as a government shutdown looms large, Wall Street feels defensive. CNN reported saying a shutdown could deal a blow to an inflation ridden economy already dealing with high gas prices, auto worker strikes. Some say a recession is in the offing that could be really bad for the economy.

Ratings agency Fitch sent Congress a wakeup call when the debt limit fight earlier this summer. The ratings agency downgraded US sovereign debt from AAA to AA+ in August, citing its reason came from not just the nation’s mounting debt but partisan brinkmanship.

But the government hit the snooze button, media reports said. The gross national debt grew alarmingly — by $1 trillion in a three month period. Political finger pointing on what or who caused the sudden rise has left a government impasse around its budgeting.

The budget deficit — the difference between what the government spends and what it takes in as revenues from taxes— reached $1.5 trillion for the first 11 months of the fiscal year, an increase of 61% since last year.

Fed rising interest rates to contain a returning inflation at 3.7% has made it tougher for the government to pay back what it owes. Consequently if the government shuts down without a plan on how it will repay the debt will make the problem worse for the administrators.

“As we have seen with recent growth in inflation and interest rates, the cost of debt can rise suddenly and rapidly,” said Michael Peterson, CEO of the Peter G. Peterson foundation, a bipartisan group that advocates for fiscal responsibility. “With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids,” he said.

President Biden’s federal expenditure on social welfare programmes are getting to be too expensive which includes subsidies on education loans, subsidies on green technologies and reducing health care costs by slashing prescription drug prices, Republicans claim and Democrats defending saying GOP backed tax cuts had actually squashed revenues from coming into the government treasury.

Come September 30, it marks the end of the fiscal year, and lawmakers will have to finalize a 2024 budget deal by October 1 to avoid a government shutdown. But not one of the 12 appropriation bills required to fund the government has passed through Congress yet, making it unlikely that a plan will be passed by the deadline, CNN said.

The threat of a shutdown comes as the US economy is already feeling the pressure of inflation, interest rate hikes and a high deficit, UAW strikes, renewed student debt payments and rising gas prices, said Gary Schlossberg and Jennifer Timmerman at the Wells Fargo Investment Institute.

Each of those things, they said “weighs on housing, consumer finances and government financing expenses in addition to recession risks during the closing months of the year.”

CNN said a government shutdown stops most government agency activities and services requiring all non-essential government personnel to take unpaid leave. Analysts at Ernst & Young estimate that there are about 800,000 non-emergency federal workers with an average salary of $95,000 each.

The damage intensity is to be measured by how long the government shutdown lasts. Each week of a government shutdown, estimated Gregory Daco, EY chief economist, and his team, would cost the US economy $6 billion and shave GDP growth by 0.1 percentage points in the fourth quarter of 2023.

The shutdown would also lead to a delay in economic data, said Daco, “creating a potential headache for economists and policymakers trying to assess the economy’s health,” the agency noted.

Shutdowns are not new to US governments as in the last 30 years they have lasted a few days and over a month, but Schlossberg and Timmerman believe that given the “hardened positions in an increasingly polarized Congress,” this one has the potential to last a few weeks.

A government shutdown could have ripple effects on Wall Street as the stock exchanges could feel the volatility and extended weakness in scripts as the economy becomes vulnerable with debts.” Investors should prepare a defensive portfolio, they added, “positioning for an economy approaching an anticipated recession.”

The Federal Reserve is expected to hold its benchmark lending rate steady on Wednesday as it waits for more data to understand how previous rate hikes are affecting the US economy.

The central bank raised rates to a 22-year high in July. As the Federal Reserve concludes its two day policy review meeting Wednesday, it is set to release a fresh set of economic projections reflecting a stronger economic growth and slightly lower unemployment this year, as compared to previous estimates.

Officials expect another rate hike this year. A consensus among Fed officials is emerging that holding rates steady this month is the right move — while some policymakers claim Fed rate hike in September could be higher than anticipated.

Investors are looking for clues that the Fed is done with hiking rates, but Federal Reserves Chairman Jerome Powell in all probability say in his post-meeting news conference that inflation remains unacceptably high. That would leave the door open for another rate increase, which could come when the following meeting concludes, on November 1. Financial markets currently see a 69% chance the Fed will continue to pause rate increases in November, according to the CME FedWatch Tool.

Meanwhile USA today in an op ed said the government hit $32 trillion in debt. Just a few months later, the United States has piled on another trillion in debt. That’s mind-boggling and dangerous for the country’s future. Higher debt crowds out spending for other priorities, it leads to higher interest rates and it’s damaging to the economy.

The debt is what should be dominating budget conversations in Congress, with less than two weeks to go to avoid some sort of government shutdown. Ditch Republican drama and address elephant in the room, the oped said. Under the radar are the House Speaker Kevin McCarthy and his unruly band of Republicans – many of the “troublemakers” are in the House Freedom Caucus, the op-ed pointed out. .

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, has been warning of the consequences of this unsustainable level of debt. “The United States has hit a new milestone that no one will be proud of: our gross national debt just surpassed $33 trillion,” MacGuineas said in a statement Monday. “Instead of hearing about solutions, we hear promises of which programs our leaders are unwilling to touch and which taxes they are unwilling to raise. That kind of talk is not only pandering, but it’s also downright irresponsible when we have a mess like this on our hands.

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