Drama over the debt ceiling is the last thing America's economy needs - CNN | Canada News Media
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Drama over the debt ceiling is the last thing America's economy needs – CNN

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If Congress doesn’t raise the debt ceiling, the federal government will likely run out of cash by October or November, according to the Congressional Budget Office. Senate Minority Leader Mitch McConnell is already vowing that Republicans will not vote to raise the federal borrowing limit — even though failing to do so risks a default that would tank the economy.
This raises the specter of Washington repeating the mistakes of the 2011 debt ceiling debacle by gambling with the full faith and credit of the United States. That episode sent markets into a tailspin and resulted in the unprecedented downgrade of America’s prized AAA credit rating.
“The last thing the economy needs is an artificial crisis,” said Joe Brusuelas, chief economist at RSM. “The risk is that the political polarization in Washington is so intense that politicians who should know better begin to throw around words like ‘default.'”
A default would be disastrous. US debt is considered among the safest securities on the planet, the benchmark for measuring all other risk. Even a near-default could send interest rates spiking, lifting the cost of borrowing on everything from car loans to mortgages. Markets would tumble.
“Few policy matters in Washington have such destructive economic capability,” Chris Krueger, managing director at Cowen Washington Research Group, wrote in a note to clients Thursday.

‘Cascading catastrophe’

During a hearing in May, JPMorgan Chase (JPM) CEO Jamie Dimon urged lawmakers not to even think about going down this path again. An actual default, Dimon said, “could cause an immediate, literally cascading catastrophe of unbelievable proportions and damage America for 100 years.”
Brusuelas echoed that sentiment. “If one wants chaos across financial markets and a replay of the global financial crisis, this would be the quickest road to hell,” he said. “The adults in the room need to take control.”
Yet this week McConnell signaled a brewing fight over the debt ceiling.
“I can’t imagine there will be a single Republican voting to raise the debt ceiling after what we’ve been experiencing,” the Senate minority leader said in an interview with Punchbowl News published Wednesday.
President Joe Biden responded by pointing out that Republicans had no problem raising the borrowing limit when a Republican was in the White House.
“You know, for the last four years, they’ve just extended the debt limit,” Biden told reporters.
In 2019, Congress voted to suspend the debt limit altogether, but that two-year suspension expires at the end of this month.
The Treasury Department can take extraordinary steps to keep the lights on — but not for long. Those measures will most likely be exhausted in October or November, the nonpartisan CBO estimated on Wednesday.

‘We’ve been here before’

This situation adds to the numerous question marks facing the US economy over when soaring inflation will cool off and the summer spike in Covid-19 cases driven by the Delta variant will taper.
“The timing of the debt limit deadline and the intersection of the issue with the broader fiscal debate is likely to lead to elevated uncertainty in late September when Congress will need to extend spending authority,” economists at Goldman Sachs wrote in a report sent to clients Wednesday night.
Wall Street seems unfazed, for now at least.
Despite Monday’s slide, the US stock market remains within striking distance of all-time highs. There are no signs of alarm about this issue in the Treasury market, either.
“We’ve been here before,” Guy LeBas, chief fixed income strategist at Janney Capital Markets, wrote in an email.
LeBas said investors would become concerned only if there was a “real risk” that the US Treasury would fail to make payments on maturing Treasury bills. And he added that would probably be three to four months after emergency cash measures begin, suggesting “there’s plenty of time” for Congress to raise the debt ceiling.

The end game

Goldman Sachs economists expect Congressional Democrats will combine the debt limit vote with a must-pass spending bill, a brinksmanship gambit that has been done in the past.
“While Senate Republican Leader McConnell has indicated that Republicans will not vote for suspending the debt limit, they might ultimately support it if the alternative is voting against spending authority, which would lead to a government shutdown,” Goldman Sachs economists wrote in the note.
Ed Mills, Washington policy analyst at Raymond James, doubts this will get settled through bipartisanship. He predicts Democrats will lift the debt ceiling through budget reconciliation as part of a major spending program, which requires only a simple majority.
“To me, this has always been the end game,” Mills said.
Even though many see a way to avoid a debt ceiling disaster, the brinksmanship itself only amplifies concerns about the political health of the United States.
Fitch Ratings warned earlier this month that it could remove America’s perfect credit rating due in part to worsening political polarization and the ongoing assault on democracy displayed by the January 6 insurrection.
Fitch concluded that governance is a “weakness” in the United States — and another standoff over the debt ceiling will only solidify its thinking.

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

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OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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Statistics Canada says levels of food insecurity rose in 2022

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OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

The Canadian Press. All rights reserved.

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Statistics Canada says manufacturing sales fell 1.3% to $69.4B in August

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OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.

The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.

The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.

Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.

Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.

Overall manufacturing sales in constant dollars fell 0.8 per cent in August.

This report by The Canadian Press was first published Oct. 16, 2024.

The Canadian Press. All rights reserved.

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