Thread by Ben Davies
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- May 9, 2023
- #Finance #CentralBank #UnitedStates
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Why 2023 US Debt Ceiling is an issue?
A Brief History of Time - US Debt Singularity:
- Debt Ceil. created by Congress 2017 Second Liberty Bond Act $11.5bn limit!
- Sets the maximum amt of outstanding federal debt the US Govt incurs
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A Brief History of Time - US Debt Singularity:
- Debt Ceil. created by Congress 2017 Second Liberty Bond Act $11.5bn limit!
- Sets the maximum amt of outstanding federal debt the US Govt incurs
- follow thread👇
- Since WWII the ceiling has been raised or suspended 102 times
- Since 1960 78x, 49x under Republican, 29x Democratic Presidents
- Since 2013 7x, in 1979 there was a technical default, late payment of $122m maturing bills
- Since 1960 78x, 49x under Republican, 29x Democratic Presidents
- Since 2013 7x, in 1979 there was a technical default, late payment of $122m maturing bills
Paying the Bills
- Even the US govt has to pay its bills
- UST issues US bonds to pay outstanding obligations
- Obligations = paying, social security, public sector salaries, military, retiree benefits, interest on national debt, tax refunds, unemployment insurance, food stamps
- Even the US govt has to pay its bills
- UST issues US bonds to pay outstanding obligations
- Obligations = paying, social security, public sector salaries, military, retiree benefits, interest on national debt, tax refunds, unemployment insurance, food stamps
- Less tax revenue, and higher spending = growing deficits
- UST has invoked extraordinary measures, while debt issuance is suspended to pay bills
- Buys more time for Congress to act, by e.g. investment suspension govt employee retiree plans
(...goes down like a bucket of sick)
- UST has invoked extraordinary measures, while debt issuance is suspended to pay bills
- Buys more time for Congress to act, by e.g. investment suspension govt employee retiree plans
(...goes down like a bucket of sick)
Suspend or Raise!
- Post 2011 AA downgrade, 2012 - 20, political convention was 2 “suspend” rather than 2 raise the limit
- 2021 debt limit was finally raised by Dem. majorities in the House and Senate!
- And so here begins the debt ceiling debate for US political parties...
- Post 2011 AA downgrade, 2012 - 20, political convention was 2 “suspend” rather than 2 raise the limit
- 2021 debt limit was finally raised by Dem. majorities in the House and Senate!
- And so here begins the debt ceiling debate for US political parties...
Suspense is R(a)ising!
- Current national debt + debt ceiling - US$31.4 tn
- Jan 2023 Yellen invoked extraord. measures
- Since 2001 that’s averaging an annual deficit of c.1 tn/year
- Tax receipts came in c100bn lower 2023
- So TGA (UST rainy day fund) is being run down faster!
- Current national debt + debt ceiling - US$31.4 tn
- Jan 2023 Yellen invoked extraord. measures
- Since 2001 that’s averaging an annual deficit of c.1 tn/year
- Tax receipts came in c100bn lower 2023
- So TGA (UST rainy day fund) is being run down faster!
Debt Ceiling Three Scenarios
1. Debt Ceiling wins, Congress forced 2 cut spending + or raise taxes to be under the cap
2. Deficit wins Congr. suspends or raised the ceiling to meet spending and revenue programs approved already
3. Congress does nothing and US Defaults on payment
1. Debt Ceiling wins, Congress forced 2 cut spending + or raise taxes to be under the cap
2. Deficit wins Congr. suspends or raised the ceiling to meet spending and revenue programs approved already
3. Congress does nothing and US Defaults on payment
2023 Scenario Analysis
- Republicans have a majority, Democrats the Presidency
- Republicans leveraging Debt ceiling to attain deep spending cuts
- Democrats want no strings attached, ‘clean’ increase
UST announce a debt-issuance suspension period
- Republicans have a majority, Democrats the Presidency
- Republicans leveraging Debt ceiling to attain deep spending cuts
- Democrats want no strings attached, ‘clean’ increase
UST announce a debt-issuance suspension period
The X-factor Date 2023
- X-date, when cash+extraord. measures exhausted is now certain
- Brought fwd from July-Sept
- Sec. Yellen 'UST runs out of money early June.'
- 4 govt to meet bills it needs to borrow/issue new debt
- Congr. must agree to raise or suspend debt ceiling...
- X-date, when cash+extraord. measures exhausted is now certain
- Brought fwd from July-Sept
- Sec. Yellen 'UST runs out of money early June.'
- 4 govt to meet bills it needs to borrow/issue new debt
- Congr. must agree to raise or suspend debt ceiling...
Quick Resolution is limited, so the 2023 US Debit Ceiling situation is unique:
- 4 changes in the 118th Congress changes to House Rules affecting Congressional Budget Process
crsreports.congress.gov/product/pdf/R/R47384
- 4 changes in the 118th Congress changes to House Rules affecting Congressional Budget Process
crsreports.congress.gov/product/pdf/R/R47384
Rule changes:
1. 'Gephardt rule' eliminated 2023
No longer allow automatic increases in the debt ceiling without House direct vote
2. 'CUTGO rule' prohibits consideration of any legislation that net effect is to increase direct spending over 6 yr and 11yr periods
1. 'Gephardt rule' eliminated 2023
No longer allow automatic increases in the debt ceiling without House direct vote
2. 'CUTGO rule' prohibits consideration of any legislation that net effect is to increase direct spending over 6 yr and 11yr periods
3. 'Holman rule'
Restrictions on how the reduction of funds occur
4. Limiting legislation preventing increased net spending on regular Appropriations (12 regular orders)
Restrictions on how the reduction of funds occur
4. Limiting legislation preventing increased net spending on regular Appropriations (12 regular orders)
Whitehouse Workarounds aka Debt Ceiling Hail Mary’s
1. Discharge petition = The House members can sign this forcing a vote, 218 members needed requires 5 Republicans to join 213 Democrats
2. Payment prioritization
a. UST principal and interest payments made on time
1. Discharge petition = The House members can sign this forcing a vote, 218 members needed requires 5 Republicans to join 213 Democrats
2. Payment prioritization
a. UST principal and interest payments made on time
b. Treasury decides when and who gets paid thereafter
Settlement occurs on time
www.federalreserve.gov/monetarypolicy/files/FOMC20110801confcall.pdf
Part II - Macro-mkt implications, as asked a lot why this debt ceiling is more problematic.
@SantiagoAuFund @ttmygh @SamanthaLaDuc @LukeGromen
Settlement occurs on time
www.federalreserve.gov/monetarypolicy/files/FOMC20110801confcall.pdf
Part II - Macro-mkt implications, as asked a lot why this debt ceiling is more problematic.
@SantiagoAuFund @ttmygh @SamanthaLaDuc @LukeGromen
