White House and Congress in ‘Mexican Stand-Off’ Over US Government Debt Limit

The US Treasury Department building is seen in Washington, DC, January 19, 2023, following an announcement by the US Treasury that it had begun taking measures Thursday to prevent a default on government debt, as Congress heads towards a high-stakes clash between Democrats and Republicans over raising the borrowing limitInternationalIndiaAfricaJames TweedieThe US government has warned it is is heading for a financial precipice if Congress doesn’t let it borrow more. Media commentator and podcaster Mitch Roschelle, David Tawil, co-founder of ProChain Capital, and Linwood Tauheed, associate professor of economics at the University of Missouri-Kansas City discussed the causes of the crisis.The Biden administration and opposition Republicans must cut a deal on the government debt ceiling before Americans go hungry, pundits say.The US Treasury has warned that it could be left unable to pay federal employees or fund government programs unless Congress approves raising its borrowing limit from $1.1 trillion to $1.5 trillion.But the Republican majority in the House of Representatives is demanding cuts to public spending in return for that green light. US President Joe Biden, a Democrat, finally met Republican House Speaker Kevin McCarthy on Tuesday — but failed to reach a substantive agreement.Mitch Roschelle told Sputnik that situation had development into a “Mexican stand-off.”

"You have both sides dug in and refusing to budge an inch as the Social Security recipients worry that their next won't come," the podcaster noted.

He argued that much of the Treasury budget plan was unavoidable settling of debts run up by the Biden administration and its predecessors.”The use of executive order ad nauseum by this administration, Trump and even the Biden-Obama administration is somewhat unprecedented,” Roschelle said. “So we have obligations for past appropriations that are due that we need to use current Treasury funds to pay. To me, that’s a no brainer. We have to pay obligations that were lawfully appropriated.”But he also criticized Biden’s refusal to negotiate with the Republican Party that now controls the House of Representatives.”On the other hand the spending in fiscal policy post COVID has been out of control,” Roschelle pointed out. “We’ve gotten to levels in the trillions that we’ve never seen before. It’s almost as if we’ve lost sight of that the size of these sums.” The commentator said it was therefore right that Congress should ask “do we need to continue to spend this way? Because our debt is greater than our GDP.”While Republicans are holding up the rise in the debt ceiling, the pundit warned the White House against imposing it through the “extreme measure” of another executive order only to “let it be challenged by the [Supreme] court and let the global marketplace worry that there’s a chance that the United States could default on its obligations.””I don’t think it buys them time. I think it’s just silly. And either they do a continuing resolution to just keep the government funded or they agree amongst themselves to add timelines to negotiate,” Roschelle said. “The brinksmanship is is is out of control.”Sputnik ExplainsWhat Should Americans Brace For on the Brink of Default?8 May, 12:30 GMTDavid Tawil told Sputnik that both sides of the partisan divide were willing to go over the ‘cliff edge’ on the issue.”These are like two children fighting in a sandbox and neither is willing to take the position of the other lock, stock and barrel,” he said. “It’s about pride more than anything, frankly. And each party believes that optics will work in their favor in terms of how this all gets spun when it all goes bad.”While conceding the Republicans had created the problem by not passing a “clean debt ceiling bill extension,” the investment guru said they had clearly calculated that they would gain an advantage from it.”From a posture perspective, I don’t think they’re going to walk away without getting something. Even even I don’t know what it is, is the minimum they’ll get away with,” tawil said. “But they they have set this up such that they believe that they are going to be able to play the public resonance of what happens here in their favor.”EconomyBiden May Skip Upcoming G7 Summit in Hiroshima if Debt Ceiling Not Raised03:11 GMTMeanwhile the US economy is on a knife-edge, with mid-sized regional and industry-specific banks filing of insolvency — and being bailed out with federal funding.Dr Linwood Tauheed told Sputnik that he blamed the US federal Reserve’s attempts to control inflation for the new financial crisis.”The cause of this failure right now is Federal Reserve policy to increase the interest rates to cause a recession,” he said. “A proper analysis of what’s causing inflation would lead the Federal Reserve to understand that increasing interest rates at this time is not going to affect the inflation very much.”Silicon Valley Bank, the first domino to fall, suffered a solvency crisis when interest rate hikes undermined the value of its portfolio of older Treasury bonds, which were issued when the lending rate was lower and had correspondingly lower yields.”As the interest rate goes up, old Treasury notes, which have a return of, let’s say 2 per cent, are not as attractive as new Treasury buys that have a return of 4 per cent,” Tauheed explained “And if you’re stuck holding those 2 per cent bonds, the value of those bonds is is is decreased.”The academic argued that it was wealthier depositors that led the runs on those banks that prompted the government to step in.‘Toxicity’ of US Dollar Fuels Growing Sway of China’s Yuan in Mercosur Trade27 April, 17:23 GMT”If you have a bank account only because your weekly payroll or your paycheck is deposited into that account and then you have to spend it, you have no additional money to buy bonds,” Tauheed said, while those with plenty of disposable income “build their wealth on the ability to to get a little more return here than somewhere else.””If they’re getting a 2 per cent return and there’s an opportunity for 4 per cent return, they will in fact take their money out of the bank to buy those 4 per cent bonds,” Tauheed stressed.The real cause of inflation was giant corporations with effective monopolies taking the worldwide energy and food shortage caused by sanctions on Russia as an opportunity for price-gouging, according to the economics professor.”The idea that monopolies cause inflated prices is is even understood in standard economic theory. You don’t have to go to some radical theory to understand that monopolies will increase the prices of goods because they can,” Tauheed pointed out. “Estimates are that 40 per cent of the inflation that we’re seeing is due solely to price gouging to corporations, increasing the price of their product more than they need to to cover the increase in costs.”To read what else our top commentators think, visit our Telegram channel.For more in-depth analysis of current affairs, tune in to our Sputnik Radio podcasts.


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