US debt ceiling: What is it and how devastating would a default be?

Published

1 year ago

May 31, 2023

admin

Efforts to prevent the United States reaching its debt limit and to avert a potentially catastrophic default on loan repayments on Wednesday move to the House of Representatives, where the vote on the proposal to raise the debt ceiling takes place.

President Joe Biden and leader of the House of Representatives, speaker Kevin McCarthy, had spent the Monday memorial day holiday shoring up support among Democrats and Republicans respectively for the agreement.

The pair had agreed a plan on Saturday for the debt limit to increase and for spending caps and work requirements to be introduced. The agreement between the leaders must now gain approval of the two chambers of congress in less than a week before the default deadline is reached on Monday.

A single opposition vote could derail progress through congress and bring the US into its first ever default, with potentially disastrous consequences for the global economy.

What’s happening this week?

Members of the Republican majority House of Representatives are to vote on the proposed agreement on Wednesday. If approved, the proposal will move to the Democrat-controlled Senate on Friday.

But it first faces an uphill battle in the House as Republican representatives have already voiced their opposition.

Ten far right leaning House Republicans are expected to vote no, believing controls on spending in the agreement to be insufficient. Republicans generally seek to shrink, rather than expand, the country’s debt.

Some Democrats too are unhappy with the deal. The deal’s planned 3.3% increase in defence spending may lead to members of both parties seeking amendments to make sure military spending rises in line with inflation, which in the US is just below 5%.

Passage in the House on Wednesday is key to bringing the vote to the Senate on Friday.

What’s in the debt ceiling deal?

The main purpose of the deal is to increase the US debt limit from $31.4trn (£25.3trn). The agreement does this by suspending the borrowing limit until January 2025 – after the next US presidential elections – rather than setting a new level.

Biden and the Democrats have made concessions to Republicans in the hopes they will back a deal. As Republicans are sceptical of government spending and seek smaller government, the deal promises spending cuts and policy concessions.

Quite how deep those spending cuts are depends on who you ask.

The White House is saying government spending would come down by $1trn, though official figures have not been released. The New York Times are reporting cuts of $136bn (£109.7bn) will be made.

Under the agreement, some social welfare recipients will be subject to new work requirements.

The bill would also end the student loan freeze Biden introduced and require former students to recommence payments.

It also revokes funding for the US tax collection authority, the IRS. Democrats had dedicated $80bn for the authority to hire more employees to boost tax enforcement, collecting more funds to implement state spending plans.

Ultimately the agreement is trying to stop a government shutdown. A deal is needed because any extension, or pause in the debt limit, needs the approval of congress.

Why does defaulting matter?

As the world’s largest economy has never before defaulted the exact consequences are uncertain but are likely to be catastrophic to the US and global economy.

The US would run out of money and no longer be able to pay its bills. Civil servant wages, social welfare payments, health insurance – known as Medicare – would go unpaid.

If the US no longer pays interest on its bonds, IOUs it issued to raise funds, it would default on debt payments.

The country’s credit rating would go down If it defaults on debt payments. A vital way the country raises money – selling bonds – could be at risk as markets will see US government debt as insecure and charge more to lend to the US.

Economic research organisation Moody’s Analytics said a prolonged period where US bills can’t be paid would lead to a nearly 20% drop in stock prices, economic contraction of 4% and the loss of more than seven million jobs.

The White House Council of Economic Advisers estimated the economy could shrink by as much as 6.1% after such a prolonged period.

Global shocks

The country would likely enter recession, which would harm the global economy as the US trades with so much of the world and is the bedrock of the worldwide financial system.

A fall in the value of US bonds would also harm economies across the world as investors could become concerned about other countries defaulting and seek to be paid more to lend to other nations.

US bonds and stocks are owned by pension funds across the world and with a drop in their values would come a drop in pension values.

When could default happen?

To prevent default an agreement must be reached by Monday 5 June, which the US Treasury Secretary, Janet Yellen, set as the deadline to raise the debt ceiling beyond the current $31.4trn (£25.3) limit.

A date as early as 1 June had been thought to be the default date before the precise deadline was set by Ms Yellen.

US

Donald Trump can seek dismissal of hush money case as sentencing postponed

Published

2 days ago

November 22, 2024

admin

Donald Trump can seek dismissal of hush money case as sentencing postponed

A judge has postponed sentencing in Donald Trump’s hush money case and granted permission for his lawyers to seek a dismissal.

It comes after the Manhattan district attorney said he wouldn’t oppose a motion to delay the sentencing.

In May, a New York jury found Trump guilty of 34 counts of falsifying business records to commit election fraud.

It was the first time a US president had been convicted of or charged with a criminal offence.

Trump had tried to cover up “hush money” payments to a porn star in the days before the 2016 election.

When Stormy Daniels‘ claims of a sexual liaison threatened to upend his presidential campaign, Trump directed his lawyer to pay $130,000 (£102,000) to keep her quiet.

The payment buried the story and he later won the presidency.

Trump denied the charges and said the case was politically motivated. He also denied the sexual encounter took place.

New York State Supreme Court Justice Juan Merchan today delayed the sentencing, which had been due to take place on Tuesday.

The office of district attorney Alvin Bragg had asked the judge to postpone all proceedings until Trump finishes his four-year presidency, which starts on 20 January.

Trump’s lawyers say the case should be dismissed because it will create “unconstitutional impediments” to his ability to govern.

Responding to Friday’s decision, a Trump campaign spokesman said: “The American People have issued a mandate to return him to office and dispose of all remnants of the Witch Hunt cases.”

The judge set a 2 December deadline for Trump’s lawyers to file their motion, while prosecutors have until 9 December to respond.

He did not set a new date for sentencing or indicate when he would rule on any motion to throw out the case.

Even before Trump’s win in this month’s election, experts said a jail term was unlikely and a fine or probation more probable.

But his resounding victory over Kamala Harris made the prospect of time behind bars or probation even less likely.

Trump, 78, was also charged last year in three other cases.

One involved him keeping classified documents after he left office and the other two centre on alleged efforts to overturn his 2020 election loss.

A Florida judge dismissed the documents case in July, the Georgia election case is in limbo, and the Justice Department is expected to wind down the federal election case as it has a policy of not prosecuting a sitting president.

Trump last week nominated his lawyers in the hush money case, Todd Blanche and Emil Bove, for senior roles in the Justice department.

When he re-enters the White House, Trump will also have the power to shut down the Georgia and New York cases.

US

Pam Bondi: Key proponent of Trump’s false 2020 election claims set to head justice department after Gaetz withdrawal

Published

3 days ago

November 22, 2024

admin

Pam Bondi: Key proponent of Trump's false 2020 election claims set to head justice department after Gaetz withdrawal

Donald Trump has pledged for years to surround himself with ultra-loyalists who can mould his government to his vision without barriers.

That’s precisely why he picked Matt Gaetz. Now he’s out, Pam Bondi is in and she’s equally loyal.

Gaetz was uniquely unpopular on Capitol Hill but ultra-MAGA and ultra-loyal to the president-elect.

He was chosen by the president-elect to do his bidding inside the Justice Department as attorney general.

Critics called his pick “a red alert moment for democracy” and the man a “gonzo agent of chaos” – language that would surely only affirm Trump’s decision in his own proudly disruptive mind.

If it wasn’t for the fact that the president-elect is himself a convicted felon, and a man found liable in a civil court of his own sexual offences, the prospect of Gaetz, with all his baggage, making it through the nomination process would have seemed remote.

But Donald Trump’s return to the White House suggested anything is possible.

And so, beyond his loyalty, Gaetz was Trump’s test for his foot soldiers on Capitol Hill. How loyal were they? Would they wave through anyone he appointed?

It turns out that Gaetz, and the storm around his private life, was too much for a proportion of them.

At least five Senate Republicans were flatly against Matt Gaetz’s confirmation. We understand that they communicated to other senators and those close to Trump that they were unlikely to be swayed.

They included the Republican old guard like Senator Mitch McConnell.

Beyond the hard “no” senators, there were between 20 and 30 other Republicans who were very uncomfortable about having to vote for Gaetz on the Senate floor.

The key question is whether Gaetz was Trump’s intentional wild card crazy choice that he knew, deep down, would probably never fly.

Was Gaetz the candidate he had accepted would be vetoed by senators – who would then feel compelled to wave the rest of his nominees through?

Will Pete Hegseth’s alleged sexual impropriety concern them as they consider the suitability of the former Fox News host and army major to run the Department of Defence?

What about Tulsi Gabbard, the candidate Russian state TV calls ‘our girl’, and the appropriateness of her running America’s intelligence agencies?

These are all appointments that the politicians on Capitol Hill must consider and confirm in the weeks ahead.

We don’t yet know who Trump will choose to direct the FBI.

There are some names being floated which will make the establishment of Washington shudder but then that’s precisely why Trump was elected. He is the disrupter. He said so at every rally, on repeat.

He was quick to pivot to another name to replace Gaetz.

Bondi is the former attorney general of Florida. Professionally she is in a different league to Gaetz. She’s been a tough prosecutor, with a no-nonsense reputation.

She is also among the most loyal of loyalists. Her attachment to Trump stretches way back.

I first came across her in Philadelphia in November 2020 when she was among Trump surrogates claiming the election back then had been stolen from them by Joe Biden and the Democrats.

She was a key proponent of the false claims the election had been rigged and Trump was the rightful winner.

The court cases concluding that was all nonsense didn’t seem to convince her.

Now she is poised to head up the Department of Justice as the country’s top law enforcement official.

US

Donald Trump on day one: Pace of change ‘like nothing you’ve seen in history’, warns campaign official

Published

3 days ago

November 21, 2024

admin

Within hours of taking office, president-elect Donald Trump plans to begin rolling out policies including large-scale deportations, according to his transition team.

Sky News partner network NBC News has spoken with more than half a dozen people familiar with the executive orders that his team plans to enact.

One campaign official said changes are expected at a pace that is “like nothing you’ve seen in history”, to signal a dramatic break from President Joe Biden’s administration.

Mr Trump is preparing on day one to overturn specific policies put in place by Mr Biden. Among the measures, reported by sources close to the transition team, are:

• The speedy and large-scale deportations of illegal immigrants

• Ending travel reimbursement for military members seeking abortion care

• Restricting transgender service members’ access to gender-affirming care

But much of the first day is likely to focus on stopping illegal immigration – the centrepiece of Trump’s candidacy. He is expected to sign up to five executive orders aimed at dealing with that issue alone after he is sworn in on 20 January.

“There will without question be a lot of movement quickly, likely day one, on the immigration front,” a top Trump ally said.

“There will be a push to make a huge early show and assert himself to show his campaign promises were not hollow.”

But Mr Trump’s campaign pledges also could be difficult to implement.

Deporting people on the scale he wants will be a logistical challenge that could take years. Questions also remain about promised tax cuts.

Meanwhile, his pledge to end the war between Russia and Ukraine in just 24 hours would be near impossible.

Even so, advisers based at Mr Trump’s Mar-a-Lago resort or at nearby offices in West Palm Beach, Florida, are reportedly strategising about ending the wars in Ukraine and the Middle East.

Following his decisive victory on 5 November, the president-elect has moved swiftly to build a cabinet and senior White House team.

As of Thursday, he had selected more than 30 people for senior positions in his administration, compared with just three at a similar point in his 2016 transition.

Stephen Moore, a senior economic adviser in Mr Trump’s campaign, told NBC News: “The thing to realise is Trump is no dummy.

“He knows he’s got two to three years at most to get anything done. And then he becomes a lame duck and we start talking about [the presidential election in] 2028.”