Experts Warn That the US Is Close to Disaster on Debt Ceiling

Experts and economists warned the Senate Committee hearing last week about the danger of disaster for the U.S. Government over the federal debt limit.

Subcommittee on Economic Policy of the Senate Committee on Banking, Housing, and Urban Affairs conducted a hearing on Mar. 7 titled: “The Federal Debt Limit and its Economic and Financial Consequences,” Five experts will be present to help you understand the Federal Debt Ceiling situation.

Five panelists were invited to address the audience: Mark Zandi (chief economist, Moody’s Analytics); Anat Weisenfreund (director of Head Start and Early Learning Programs, Community Action Pioneer Valley); Douglas Holtz–Eakin, President of American Action Forum; Michael R. Strain (director of economic policy studies and Arthur F. Burns scholar, American Enterprise Institute); and Amy K. Matsui (senior counsel and director, Income Security, National Women’s Law Center).

Senators Elizabeth Warren, D-Mass.), chairwoman of the Economic Policy subcommittee, and John Kennedy (R-La.Subcommittee ranking Member, was joined by senators Bob Menendez and Chris Van Hollen. The hearing will be conducted by the following.

The panelists unanimously agreed that Congress should quickly raise the debt limit, as a last-minute move may cause uncertain global markets to stumble and credit default swaps on U.S. government bonds to hit volatile levels.

As time passes, the credit rating of the country could be affected by congressional infighting.

House Republicans have called on both the Democrats and Biden to lower federal expenditures, and work to reduce America’s $34 trillion debt.

The outgoing Democrat House majority pushed last-minute legislation in December to raise the debt limit by $2.5 trillion, but the government hit its $31.4 trillion ceiling on Jan. 19.

The Treasury Department was forced to take extraordinary measures to pay the national bills on time. This is done through various accounting maneuvers in order to avoid defaulting and buy time for Congress’s increase in the ceiling.

The panelists warned lawmakers that although Congress has successfully brokered deals over the debt limit in the past, there is still a chance that the deadline between June and September could be missed this year, causing the government to default on its obligations due to inaction.

Senate Subcommittee Member agrees to reject default government

Senator Warren began the hearing by attacking the GOP-controlled House and accusing them not of being “concerned about the debt ceiling deadline,” They were so much more than that. “thrilled” To make the most of this opportunity “leverage” Pass a national sales and use it to reduce spending at federal agencies and increase entitlements. These are claims that will favor the wealthy and corporations rather than American workers.

In response, Kennedy said that although he agreed that raising the U.S. debt limit was a moral and practical principle and would not support a default, he did not explicitly say he would vote to raise or suspend the debt limit, but added that someone eventually has to pay the bill.

Kennedy had earlier voted  Democrat-sponsored bill That, and all the other Republicans in both Houses, raised the debt limit by the end of this year except one Congressperson.

“Some economists leave out the second part of what [John Maynard] Keynes said. He said when the recession is over, you pay the money back—and that’s kind of an important part of the equation,” Kennedy spoke out about deficit spending as a way to stimulate the economy.

Moody’s analyst: Bondholders will not tolerate default

Mark Zandi, the first speaker to address the Senate panel, said the debt limit stalemate in Congress threatened any chance that the U.S. economy could skirt a recession by 2024 and posed a long-term threat to the nation’s finances and economic growth.

“I think it’s absolutely critical that lawmakers either increase suspend, or verbally do away with the debt limit,” Zandi stated that it was important to remember there were no strings attached.

“If we don’t do away with it within the next few months, the Treasury will run out of cash to pay all the government’s bills and, in fact, we’ve done a bit of work trying to estimate the so-called ‘X day’ when the Treasury will run out of cash and we put that in Aug. 18.”

Also, he snubbed any discussions of a workaround regarding the avoidance of payment and prioritization for U.S. Treasury bondsholders as well as not paying them in time in case they default.

“The thought being that that would mean that we’re not defaulting on the government debt. In maybe a technical sense, we’re not defaulting on the government debt, but I’m not sure how long that will last in a political sense, and I think investors know this very clearly,” Zandi noted.

He said that both parties were responsible for federal deficit and debt, and that it would be a problem in the long run, adding that the matter “does require a look at both tax revenue and spending restraint.”

Zandi as well as Michael Strain, who happens to be a conservative, agreed that Congress must act well before the summer deadline to avoid negative impacts on federal programs, the global economy, and long-term financial prospects.

Experts in Economics Fear Permanent Damage to America’s Financial Reputation

“Is the United States a nation with a political system that is so dysfunctional that it cannot pay the bills and is legally obligated? To pay? That question is at the heart of the uncertainty around the debt ceiling. If the U.S. defaults on our bond obligations, many investors international and national leaders and citizens will answer that question in the affirmative,” Strain.

He stated that the U.S. government would lose its credit rating if it made an 11th-hour bargain, which is what happened in 1979 and 2011.

Anat Weisenfreund, Amy Matsui, and Anat Weisenfreund, were also critical of any spending reduction compromises in raising the debt limit.

Later on, Senator Van Hollen inquired if panelists agreed to the speculation that the Treasury Department could prioritize the payments it made if the government defaults.

Douglas Holtz Eakin had previously stated that such a scheme was not possible. “won’t work and we will default, other than that it’s a spiffy idea.”

Explaining his comments, Holtz-Eakin said that the problem with the idea that Treasury could prioritize certain payments is that the federal government “can’t do it forever and it doesn’t solve any underlying problem.”

“It just kicks the problem down the road temporarily,” He continued.

He also stated that a default could be triggered. “lead to a downgrade of U.S. Treasurys, a loss of their risk-free nature that would be a recipe for global financial turmoil, and we would have poor economic performance across the globe with fallout on every American.”

Holtz Eakin stated that the U.S. Treasury’s creditworthiness would be forfeited and this would give a golden chance to win. “China, and at this juncture, there’s no reason to do that.”

Meanwhile, in response to a question from Sen. Menendez regarding China, Zandi explained that if the federal government were to default for the first time in its history, there would be no going back.

“Since the founding of the nation, this was a principle that we established. Alexander Hamilton, the first Treasury secretary, bought back the revolutionary war debt on pennies on the dollar to establish the credit of the United States, that we are money good, if you put your money with us, you’re good,” He stated.

“If we for one second go over the line and not pay in a timely way, we lose that forever,” Zandi added that negative costs are unacceptable “incalculable.”