Plus: a White House miscalculation
â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â [The Fisc]( Â Â By Yuval Rosenberg and Michael Rainey Happy Star Wars Day â May the Fourth Be With You! Weâre eagerly anticipating the next round of movies, though we still havenât quite gotten over âThe Last Jediâ even after more than five years. Until those next movies come out, hereâs what weâre watching. Mark Zandi (SIPA USA) GOP Debt Plan Could Push US Into Recession: Moodyâs Chief Economist
Moodyâs Analytics chief economist Mark Zandi told lawmakers Thursday that the bill passed by House Republicans to raise the debt limit in the short run while slashing spending over a period of 10 years would drag on economic growth and possibly push the U.S. into a recession. Speaking at a Senate Budget Committee hearing, Zandi said the government spending cuts included in the bill would reduce economic growth by 0.67 percentage points in 2024. That alone would not be enough to cause a recession, Zandi said, but it could hasten a slowdown that many economists expect to develop later this year or in early 2024. âThe timing of the government spending cuts in the Limit, Save, Grow Act is thus especially inopportune â it would meaningfully increase the likelihood of such a downturn,â Zandi said in his [prepared testimony](. âIndeed, under the legislation, GDP growth is so weak that employment declines in the first three quarters of 2024, and the unemployment rate rises by more than a percentage point to nearly 4.6% by the fourth quarter of 2024.â The fact that the bill would raise the debt limit for less than one year is also a problem, Zandi said, since the likelihood of another political showdown over the issue in just a few months would âweigh on investor, business and consumer confidence and thus economic activity.â Zandi also noted that the spending cuts outlined in the House GOP bill would push nondefense spending to lows not seen in decades when measured as a share of the economy. âIf nondefense discretionary outlays were to bear the full brunt of the proposed budget cuts, they would fall to 2% of GDP by fiscal 2033, the lowest since at least the early 1960s,â he said. Lawmakers spar: The hastily arranged Senate hearing gave Democratic lawmakers a platform to push back against the bill passed by House Republicans last week. Sen. Patty Murray (D-WA) charged that the GOP was using the debt ceiling as a hostage. âHouse Republicans are saying if you donât let us wreck the economy and whittle down essential government services to the point where we are laying off air traffic controllers, then we will just wreck the economy by refusing to pay the bills instead,â she said. In response, Republicans focused more on the long-term issue of the national debt while calling on President Biden to come to the negotiating table. âHouse Republicans have acted responsibly by passing a debt ceiling increase,â said Sen. Chuck Grassley (R-IA), the top Republican on the committee. âIn contrast, President Biden and Democrats have sat idly by.â Brian Riedl, a tax and budget specialist at the conservative Manhattan Institute, said the current fiscal trajectory is unsustainable and must be addressed âimmediately.â He warned that international investors would punish the U.S. if it continues to increase its debt. âIf we donât deal with this, the bond market will cut us off at some point and it will be much more painful,â he said. At the same time, Riedl declared that lawmakers must avoid a default. âI agree that the debt limit must be raised on time, no matter what,â he said. âHitting the debt limit would force an immediate 20% cut in federal spending, and possibly default on the national debt. The effect on families, businesses, financial markets, and the broader economy would be devastating. That is not a solution to soaring debt. The debt limit must be raised.â Another expert appearing before the committee, Jason J. Fichtner, chief economist at the Bipartisan Policy Center, emphasized that raising the debt ceiling should be lawmakersâ top priority. âFirst, Congress must raise the debt ceiling. Period. Full stop,â he said. âTaking the nation near the brink of defaulting on any payment obligationsâor going over the cliff and failing to make any obligated paymentsâwill cause unnecessary fiscal expense, potentially damage the full faith and credit of the United States, cause financial harm to millions of Americans (through possible delayed government payments and loss of stock market value and retirement account wealth) and, in the end, cost more than any potential savings being discussed or imagined.â After the debt ceiling threat is removed, Congress can work to improve the countryâs unsustainable fiscal trajectory, Fichtner said. He called on lawmakers to work on a bipartisan basis. âWhile the debt limit is not a good mechanism to facilitate the necessary and thoughtful conversation on addressing the nationâs fiscal challenges, it is the opportunity currently present and available,â he said. âI encourage members of the House and Senate, Democrats and Republicans, and President Biden, to sit down and negotiate before the Treasury Department runs out of options to continue making full payments on the governmentâs obligations.â The bottom line: Although the experts testifying before the Senate committee agreed that the U.S. needs to address its long-term fiscal challenges, there was no agreement on whether using the threat of default provided a proper framework for doing so. All did agree, however, that default should not be an option. âWe need to end this drama as quickly as possible," Zandi said. âIf we don't, we're going to go into recession and our fiscal challenges will be made even worse. White House Surprised by Lack of Establishment Support for Its Debt Stance: Report
As President Biden prepares to meet next week with House Speaker Kevin McCarthy and other congressional leaders to discuss raising the debt limit, The Washington Postâs Jeff Stein [reports](washingtonpost.com/business/2023/05/04/white-house-biden-debt-ceiling/) that the White House has been surprised that business groups and budget hawks that it thought would be in its corner in this fight are instead siding with Republicans. The White House has insisted that Congress should raise the debt limit without conditions, as it has done before, and that the risk of a debt default should not be used as leverage to force spending cuts, which can be discussed as part of budget talks. Republicans insist they wonât raise the borrowing limit without some concessions to address the countryâs fiscal outlook. Stein cites a range of groups, from the Business Roundtable and Chamber of Commerce to the Bipartisan Policy Center and the Committee for a Responsible Federal Budget, all of which have come out in favor of negotiations between the administration and House Republicans. None have pushed for the clean debt limit increase that Biden is seeking. âRather than join Biden in urging the GOP to simply raise the borrowing limit â as many administration officials had hoped â these groups have called for bipartisan budget negotiations, implicitly endorsing McCarthyâs position and rejecting Bidenâs opposition to talksâ about the debt limit, Stein writes. He adds that administration officials were âstunnedâ by a statement from the Committee for a Responsible Federal Budget calling the House Republican debt limit bill a ârealistic and extremely welcome first step.â Biden officials reportedly saw that as encouraging further brinkmanship over the debt limit. âWe were livid,â one told the Post. We should add here that much of the media is taking a similar approach to those outside groups. Weâve noticed television news anchors and reporters asking Democrats why they donât just try to [find a middle ground]( with Republicans, questioning whether Bidenâs position [is sustainable]( or asserting outright that [it isnât](. While business groups have urged the White House to negotiate, corporate leaders have largely stayed on the sidelines, as [NBC News]( notes â and itâs not clear if pressure from companies would sway a House Republican conference that has empowered some of its most far-right members and seen relations with the Chamber of Commerce grow strained. âA battery of phone calls from the nation's executives may do little to persuade Republican stalwarts to get on board with the Biden administration to lift the debt limit â or to persuade the White House to agree to spending cuts demanded by the GOP,â NBCâs Kayla Tausche, Shannon Pettypiece and Kristen Welker write. Republican strategist Liam Donovan told the Post that the White House made a bad bet on GOP dysfunction. âBut with the passage of a GOP debt limit proposal, any industry group or think tank that is more interested in keeping the economy on the rails understands that the path of least resistance is for Biden to sit down with McCarthy and come to a deal that allows everyone to save face,â he said. Lindsay Owens, the executive director of the liberal Groundwork Collaborative, was harsher: âThe so-called âfiscally responsibleâ adults in the room have actually been happy to participate in a reckless strategy of hostage-taking and trying to force the White House to accept MAGA cuts,â she told the Post. Whatâs next: Biden faces increasing pressure to work out a deal, but the White House has stuck to its position, arguing that thereâs an important principle at stake. We may get some indication next week whether the unexpected political dynamics, combined with time pressure, drives Biden to try to reach a face-saving deal. âMr. Biden could negotiate without ânegotiatingâ by trying to broker an early agreement on spending levels for the next fiscal year, before the X-date,â Jim Tankersley of [The New York Times]( suggests as one of several possible options. âIn exchange, Mr. McCarthy would commit to passing a clean extension of the debt limit.â Number of the Day: 4
From [The New York Times]( âCovid was [the fourth leading cause of death in the United States]( last year, dropping from its place as the third leading cause in 2020 and 2021, when virus fatalities were superseded only by heart disease and cancer, the National Center for Health Statistics reported on Thursday.â The top three causes of death were heart disease, cancer and unintentional injury. --------------------------------------------------------------- Send your feedback to yrosenberg@thefiscaltimes.com. And please encourage your friends to [sign up here]( for their own copy of this newsletter.
--------------------------------------------------------------- News - [Debt Limit Deadline Looms as Democrats, GOP Spar on Spending]( â Associated Press
- [Republicansâ Debt-Limit Plan Would Push US Into Recession, Senate Democrats Say]( â Bloomberg
- [Political Finger Pointing on Debt Limit Escalates Ahead of White House Meeting]( â Time
- [A Debt Ceiling Crisis Could Cripple Corporate America, but So Far Business Isnât in the Fight]( â NBC News
- [âThe Last Thing That Markets Needâ: White House Focuses on Economic Costs of Default]( â Yahoo Finance
- [Washington Is Running Out of Workdays to Strike a Debt Ceiling Deal]( â Washington Post
- [More Than 50 House Republicans Tear Into VA Secretary Over Debt Bill Claims]( â The Hill
- [Pushback Against Powellâs Prognosis Comes Almost Immediately]( â Bloomberg
- [Treasury Yields May Fall to 2% as Gundlach, Banks Eye Recession]( â Bloomberg
- [Biden Administration Warns of Risks From Medical Credit Cards]( â The Hill
- [Slowing US State Revenues Put Spotlight on Record Rainy Day Funds]( â Bloomberg
- [Bernie Sanders Introduces His Largest Minimum Wage Proposal Yet]( â ABC News
- [FDIC Plans to Hit Big Banks With Fees to Refill Insurance Fund]( â Bloomberg
- [What the End of the Covid Public Health Emergency Means for You]( â Washington Post Views and Analysis - [With Default Looming, What Can Biden Do?]( â Jim Tankersley, New York Times
- [How to Solve the Debt Ceiling Standoff? Sue Janet Yellen]( â Jonathan Zasloff, American Prospect
- [How Biden Can Win the Debt-Ceiling Fight With One Weird Trick]( â Eric Levitz, New York
- [Want Fiscal Responsibility? Stop Paying Wealthy Farmers]( â Washington Post Editorial Board
- [What the GOP Doesnât Understand About Bidenâs Debt Ceiling Position]( â Steve Benen, MSNBC
- [Fast Approaching Debt Limit Deadline and Growing Debt Demand Action]( â Alex Durante and Erica York, Tax Foundation
- [We Desperately Need a New Power Grid. Hereâs How to Make It Happen]( â New York Times Editorial Board
- [The Dollarâs Demise May Come Gradually, but Not Suddenly]( â Niall Ferguson, Bloomberg
- [Care Work in the United States Has Been Broken for Years]( â Tracy Alloway and Joe Weisenthal, Bloomberg (podcast)
- [A Toast to Raising Alcohol Taxes]( â Kirk Semple and Adam Westbrook, New York Times (video) Copyright © 2023 The Fiscal Times, All rights reserved.
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