Government shutdown, debt ceiling looming...

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Debt Ceiling 2023

Biden and McCarthy to meet at White House on Monday to try and avoid looming debt default

President Joe Biden and House Speaker Kevin McCarthy, R-Calif., will meet in person at the White House Monday to resume negotiations around the debt ceiling.

Treasury Secretary Janet Yellen said Sunday that “hard choices” will need to be made about which bills will go unpaid if the debt ceiling is not raised.

McCarthy told reporters that he had a “productive” call with Biden on Sunday, and that staff members for both parties will resume talks
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https://www.cnbc.com/2023/05/21/deb...to-be-made-if-debt-ceiling-is-not-raised.html
 
This Debt Ceiling Fight is something I promised myself 12 years ago, that I would wait on the sidelines for it to conclude, and exited stocks today for the safety of the G with 1st May IFT.

But the larger overall discussion of the Debt situation is an interesting one here to discuss...and one of Tom's polls touched on it...where a large majority said spending was the main problem.
If we are successful in tackling the National Debt (cure the patient) we have to first "Stop the Bleeding" by balancing the Federal Budget.
One side says we have to cut spending...the other side says we have to raise revenue.
The "spending side" sounds good, until one actually looks at our Federal Annual Budget, and see's there's really only 13% to play with, assuming we're not going to cut military in the most dangerous time across the world since the Cuban Missile Crisis 60 years ago...with not just Russia's threat to the free world, but also China (Taiwan).
So the US probably needs to increase military spending in the short term.
Taxes, on the other hand (revenue) are near the lowest levels in nearly a century. And every time the top rate was cut below 40% we've gotten into trouble, like when we squandered the near balanced budget of the late 90's with tax cuts in the early 2000's, started increasing our deficits sharply post 2017 via tax cuts, and increased deficits tremendously after massive tax cuts in early to mid 1980's. Got into trouble in the late 1920's when we cut taxes so much, it led to the irrational exuberance that helped sink the US into the Great Depression.

A cold hard look at the numbers below. With both sides locked into their beliefs, I don't see a viable solution anytime soon, not until 1 side realizes entitlements need to be trimmed, and the other side realizing taxes for some, have to go up...IMHO. Actually its my opinion steeped in mathematical fact. But curious what others think.

Federal Bdget & Debt.jpg
 
I think we need to raise taxes, and we need to apply import duties- enough to pay for health care for Americans. Lift the cap on Social Security. Impose a 0.1% stock transfer tax, AND a 1% stock buyback tax. And then repeal the Trump tax cuts that blew the hold in the deficit.

Corporations allow development that individual ownership couldn’t do. With that benefit, should come extra fees to society. That is what I think.

But that’s just me.


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Definately agree with lifting the cap on Social Security.
Part of my salary is exempt from SS taxes and I'm just a federal employee who will be relying on SS for at least 25% of my retirement.
Also top tax rate has to go back to the long term average we had during America's longest sustained economic expansion, between the 91% from 1946-160 and the 37% it is today. I would say 50% would be a good start...then as we approach a balanced annual budget, that top rate can come down gradually to 45 or 40%.
Thats is we are serious about doing something about our National Debt.

James48843 said:
I think we need to raise taxes, and we need to apply import duties- enough to pay for health care for Americans. Lift the cap on Social Security. Impose a 0.1% stock transfer tax, AND a 1% stock buyback tax. And then repeal the Trump tax cuts that blew the hold in the deficit.

Corporations allow development that individual ownership couldn’t do. With that benefit, should come extra fees to society. That is what I think.

But that’s just me.


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I expect that there are some areas that we can trim the budget but certainly not 4 trillion from discretionary spending. But taxes need to be raised as well. The other problem is if the spending cuts hurt the state budgets, then the state will raise taxes or cut more areas that will hurt the residents of the state. It's just a vicious circle.
 
Thanks for keeping this thread civil so far. We know how it can go and someone may eventually spoil it, but until then, just reporting on what's happening...


Debt ceiling talks hit a snag over spending levels with eight days until default deadline

Debt ceiling negotiations appeared to hit a snag with only eight days to go until the U.S. faces risk of a default.

The White House and House Republicans appeared at an impasse over spending cuts the GOP has demanded.
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https://www.cnbc.com/2023/05/24/deb...updates-between-joe-biden-kevin-mccarthy.html
 
My two cents. Debt ceiling showdowns do nothing. From 2011 they only accelerated increasing the debt. Even now it’s just noise.

There’s always going to be an excuse or crisis. The only solution is a balanced budget amendment.

Tax receipts increase usually. Have been since 2009. There’s no reason why spending can’t see modest increases in parallel. If we’re not adding deficits each year then that’s all you can reasonably hope for.

As for tax increases it sounds good. More money to pay it down? But it just means more spending to me. It’s a separate issue imo. Still it’s important to remember more revenue doesn’t mean they use it to pay down anything. I’d support tax increases only if there’s something in place to control spending.

This is a spending problem. Even with a modest tax increase hopefully aimed at wealthy, it’s asking too much to rely on future congresses to be disciplined enough to keep spending in check without an amendment.


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I’m concerned because of the timing right now. If there is no agreement today, (which there won’t be), then it is going to be too late to get a new debt ceiling signed into law in a timely fashion.

Whenever the House and the White House can come up with a deal, it will still have to be voted on in the House AND also pass the Senate. They both are supposed to adjourn after today. And Monday is a holiday.

I’m seeing it easily going beyond June 1, and a bankruptcy is imminent at that point.

I just called my Congressman’s office, and the staffer answering the phone said “oh, I’m sure the Dems will cave. Just because somebody said June 1 doesn’t really mean June 1. “

I can’t believe the staffer is saying such a thing. It’s not going to be pretty if it actually goes belly up.


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Just some quick things that come to mind.

Getting rid of the gift exemption is a nice place to start. Over a lifetime you can give away $13M if single or $26M if married, to friends and family. That's ridiculous, unreasonable, and only benefits a small subset who are more concerned with passing down generational wealth than anything else.

Another place is the lifetime contribution limit of $550k per beneficiary to a 529 (college savings) fund. I'm not saying to do away with 529's because they are a great vehicle for savings, but the top 1% of earners receive 40% of the benefits of a 529 plan. It's just another way to shelter money even though it is subject to the above rules.

How about preventing tax breaks for corporations to move to a certain city? Once the tax break dries up, the company plays hardball to renegotiate or ups and leave. Disney is facing similar challenges with that right now. Sure they take care of the property and roads and all, but the honeymoon phase is over.

Social Security and Medicare ages need to be raised. Really no need to elaborate there.
 
Fitch puts United States' AAA rating on negative watch, citing debt ceiling fight

Source: CNBC

Fitch put the United States’ AAA long-term foreign-currency issuer default rating on negative watch Wednesday evening, pointing to brinksmanship over the debt ceiling.

“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a solution to raise or suspend the debt limit despite the fast-approaching x date,” the rating agency said.

Futures linked to the Dow Jones Industrial Average briefly slipped about 100 points after Fitch, one of the big three ratings agencies, issued its note. The so-called X-date, which is when the U.S. could default on its debt, could arrive as early as June 1, according to Treasury Secretary Janet Yellen.

Fitch noted that it still expects Washington officials to arrive at a resolution before the deadline. “However, we believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations,” the rating agency said.

Read more: https://www.cnbc.com/2023/05/24/fitch-us-aaa-rating-negative-watch-debt-ceiling.html


(That is a significant, negative action).

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James48843 said:
Fitch puts United States' AAA rating on negative watch, citing debt ceiling fight

Source: CNBC

Fitch put the United States’ AAA long-term foreign-currency issuer default rating on negative watch Wednesday evening, pointing to brinksmanship over the debt ceiling.

“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a solution to raise or suspend the debt limit despite the fast-approaching x date,” the rating agency said.

Futures linked to the Dow Jones Industrial Average briefly slipped about 100 points after Fitch, one of the big three ratings agencies, issued its note. The so-called X-date, which is when the U.S. could default on its debt, could arrive as early as June 1, according to Treasury Secretary Janet Yellen.

Fitch noted that it still expects Washington officials to arrive at a resolution before the deadline. “However, we believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations,” the rating agency said.

Read more: https://www.cnbc.com/2023/05/24/fitch-us-aaa-rating-negative-watch-debt-ceiling.html


(That is a significant, negative action).

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Thats what Moody's did 12 years ago, and was responsible for half of the S&P's 22% plunge in 2011.
And that occurred a few days after the debt ceiling deal was done at the last minute.
Makes a strong case to not only be out of stocks now, but stay out thru the 1st 1-2 weeks in June even if there is a debt deal, because Fitch will likely do what Moody's did 11 years earlier...Lower US AAA rating to AA+.
I'm not gonna mention parties here, but am going to say those in Congress using Default as a political weapon, should be removed from office, they're putting party over country.
 
Ok- The House just adjourned for the weekend.

There is NO DEBT CEILING DEAL, and now no way to even schedule a vote on any deal until next week.

That means it just got far, far more likely that there will be a US default. Here is what the Hill has to say about Congress leaving town.

https://thehill.com/homenews/house/4021122-house-leaves-town-with-no-debt-limit-deal?

I think stocks will reflect that failure to reach a deal - and fall from here out , until things get settled.

I’m sitting in G and gonna stay there.
 
The futures aren't really reacting to that yet. They'll probably agree on some kind of short extension of 2 -3 weeks. Then they will get a ton of revenue inflows from corporate quarterly payments due on the 15th to keep funding the gov. Coming to the wire, but I doubt there's a default in the cards, especially next week. Maybe more downgrades in the interim, though?
 
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I'm just tired of our Congressmen and Senators always taking either the debt ceiling or next year's budget right down to the wire. Start doing your d..n job like you are supposed to and stop playing party brinkmanship over the lives of your constitutes.

Also why are we only one of two counties that have a debt ceiling law????? Get rid of the stupid thing.
 
tsptalk said:
The futures aren't really reacting to that yet. They'll probably agree on some kind of short extension of 2 -3 weeks. Then they will get a ton of revenue inflows from corporate quarterly payments due on the 15th to keep funding the gov. Coming to the wire, but I doubt there's a default in the cards, especially next week. Maybe more downgrades in the interim, though?
Click to expand...

This is different- it’s not a budget appropriations battle- they have the money approved by Congress. It’s a debt ceiling battle, which means they will only be able to do a big extension, like raise it 3 trillion, or something. A 3 week deal really can’t be done because they don’t know how much 3 weeks would cost. They aren’t even sure today that they will hit the ceiling June 1. It’s close, but how much is in the G fund actually matters. If everybody moved to G, I wonder if that would give them another week. Or just a day.

. 14th amendment would keep it going, but then the Court would have to weigh in.

I’m afraid they are going to blow it up this time and it’s just not going to get done in time. Keep your fingers crossed that stocks don’t buckle.


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James48843 said:
I’m afraid they are going to blow it up this time and it’s just not going to get done in time. Keep your fingers crossed that stocks don’t buckle.
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It sure got scary in 2011 during the negotiations...

tsp-052523d.gif
 
I think the government needs to live within its means. There is a lot of waste and multiple layers of unnecessary bureaucracy. The more money you feed it, the more the federal government spends & expands. Continuing to print more dollars isn't the solution and with the real possibility that the US is losing its reserve currency status, I think we may be in for more hurt in the future by not controlling the debt.

I agree that there should probably be some adjustments, increasing or removing the limit on SS Payroll tax would be one way to increase revenues quickly. High income earners (over $200K)
are already paying an additional .9% medicare tax
 
They should be sequestered until they come to a solution.
James48843 said:
Ok- The House just adjourned for the weekend.

There is NO DEBT CEILING DEAL, and now no way to even schedule a vote on any deal until next week.

That means it just got far, far more likely that there will be a US default. Here is what the Hill has to say about Congress leaving town.

https://thehill.com/homenews/house/4021122-house-leaves-town-with-no-debt-limit-deal?

I think stocks will reflect that failure to reach a deal - and fall from here out , until things get settled.

I’m sitting in G and gonna stay there.
Click to expand...

nasa1974 said:
I'm just tired of our Congressmen and Senators always taking either the debt ceiling or next year's budget right down to the wire. Start doing your d..n job like you are supposed to and stop playing party brinkmanship over the lives of your constitutes.
Click to expand...
 
Good article on what exactly happens to government bond holders if the U.S. defaults.

Explainer: What would happen to a Treasury bill after default? Six key questions


May 25 (Reuters) - The U.S. Treasury Department is at risk of defaulting on its debt if Congress doesn't act to lift the debt ceiling before it is reached, which could happen as soon as June 1. For holders of Treasury bills, notes and bonds, that raises uncertainty over whether the issues they hold will be affected, and what happens if the debt is not repaid or an interest payment is skipped.

DO ALL BONDS DEFAULT IF ONE PAYMENT IS SKIPPED?

No. Treasuries do not have any cross default provisions so a skipped payment on one issue will not necessarily impact others.

So far, moves in the Treasury bill market reflect localized concern over certain issues that mature in early June, when the U.S. Treasury Department is viewed as most likely to run out of funds. Yields on these bills are trading at higher levels than comparable debt that matures later in the year.

WILL DEFAULTED ISSUES STOP TRADING?

Analysts say it is critical that Treasuries can continue to be transferred on the Federal Reserve’s settlement system, the Fedwire Securities Service. The Treasury can ensure the securities remain on Fedwire by giving notice the day before that a payment will be delayed. It should do this daily until it can make the payment.

More:

https://www.reuters.com/markets/us/...y-after-default-six-key-questions-2023-05-25/


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