US debt ceiling: optimism and warning

US debt ceiling: optimism and warning

Negotiators from the Democratic and Republican parties are stepping up efforts to reach an agreement to raise the public debt ceiling (currently at $31.4 trillion) to help the US avoid default. After a four-hour meeting at the White House on May 24 (local time), US House of Representatives Speaker Kevin McCarthy said negotiations were progressing and would continue.

He also predicted that the two sides will reach an agreement, although there are still some unresolved issues. Meanwhile, White House Press Secretary Karine Jean-Pierre is also optimistic about the possibility of finding a common voice if negotiations continue in good faith.

However, the White House and the Democrats have not forgotten to accuse the Republican Party of holding the economy “hostage” to advance its agenda. According to them, the Republicans need to make more concessions because they will need the votes of the Democrats to pass any agreement.

In response, McCarthy stressed that any deal would not raise taxes and should cut some US government spending (about 8% for the 2024 fiscal year, which starts Oct. 23), rather than remain at this year’s required level. by the Democrats.

US debt ceiling: optimism and warning - Photo 1.

Speaker of the US House of Representatives Kevin McCarthy speaks to the media in Washington, DC, on May 24. Photo: REUTERS

Reuters said there was not much time for negotiations. The US Treasury Department has warned that the government could default on its debt as early as June 1, while passage of the related bill in a divided congress could take time.

The White House estimates that a prolonged default threatens to cost 8.3 million jobs and send the economy into recession. Meanwhile, Moody’s Analytics (US) estimates that a default scenario of no more than a week also leads to the loss of 1.5 million jobs.

In particular, the credit rating agency Fitch Ratings (USA) warned on May 24 that the impasse in negotiations on the debt ceiling could negatively affect the credit rating of the world’s largest economy.

Fitch has placed the US AAA credit rating on “downgrade monitoring”, indicating concern over ongoing debt ceiling talks and the possibility of a default for the first time in history. The agency also predicts that the US government will continue to spend more than it takes in, leading to a budget deficit equivalent to 6.5% of GDP in 2023 and 6.9% of GDP in 2024.

Another credit rating agency, Moody’s (US), also currently assigns the highest level of “AAA” to US credit, with the expectation that Washington will continue to repay loans on time. However, public statements by parliamentarians during public debt ceiling negotiations may force the agency to change its assessment.

Meanwhile, Standard & Poor’s Credit Rating Agency (USA) still maintains the US credit rating at AA+, which is 1 notch below AAA. Previously, Standard & Poor’s had downgraded the US credit rating as the country neared default in 2011, triggering a sell-off wave in the stock market.

George Mateyo, director of investments at Key Private Bank (USA), said that it would not be surprising if the scenario of 2011 was repeated, and warned that the current impasse could lead to a loss of confidence. .

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Written by Esme Dominguez

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