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  • The debt ceiling deal: This clause is bad for Social Security

    The debt ceiling deal: This clause is bad for Social Security

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    If there were no tax cheats in America, there would be no Social Security crisis. Benefits could be paid, and payroll taxes kept the same, for the next 75 years.

    That’s not me talking. That’s math. It comes from the number crunchers at the Social Security Administration and the Internal Revenue Service.

    And it explains why those of us who support Social Security should be pounding the table in outrage over one clause of the Biden-McCarthy debt ceiling deal: The part where the president has to retreat from his crackdown on tax cheats just so McCarthy and the House Republicans would agree to prevent America defaulting on its debts.

    It’s just two years since the administration got into law an extra $80 billion for the IRS to beef up enforcement. That was supposed to include hiring an estimated 87,000 IRS agents. 

    OK, so nobody likes paying taxes and nobody likes the IRS. Cue the inevitable critiques of an IRS tax “army,” and so on. But this isn’t about whether taxes should be higher or lower. It’s about whether everyone should pay the taxes that they owe.

    After all, if we’re going to cut taxes, shouldn’t they apply to those of us who obey the laws as well as those who don’t? Or do we just support the “Tax Cuts for Criminals” Act?

    Why would any voter rally around a platform of “I stand with tax cheats?”

    The Congressional Budget Office calculated that the extra funding for the IRS would have reduced the deficit, because it would more than pay for itself. But it’s now been cut by an estimated $21 billion out of $80 billion.

    If this seems abstract, consider the context and how it affects you and your retirement — and the retirements of everyone you know.

    Social Security is now running at an $80 billion annual deficit. That’s the amount benefits are expected to exceed payroll taxes this year. (So say the Social Security Administration’s trustees.)

    Next year, that deficit is expected to top $150 billion. By 2026, we’re looking at $200 billion and rising. The trust fund will run out of cash by 2034, and without extra payroll taxes will have to slash benefits by a fifth or more.

    Over the next 75 years, says the Congressional Budget Office, the entire funding gap for the program will average about 1.7% of gross domestic product per year.

    Meanwhile, how much are tax cheats stealing from the rest of us? A multiple of that.

    According to the most recent estimates from the IRS, tax cheats steal about $470 billion a year. And that figure is four years out of date, relating to 2019. That’s the figure after enforcement measures.

    Oh, and the Treasury Inspector General for Tax Administration says that’s a lowball number.

    But it still worked out at around 12% of all the taxes people were supposed to pay (including payroll taxes). And around 2.3% of GDP.

    Over the next 10 years, based on similar ratios to GDP, that would come to another $3.3 billion. 

    Sure, Social Security’s trust fund is theoretically separate from the rest of Uncle Sam’s finances. But that’s an accounting issue: A distinction without a difference.

    Social Security is America’s retirement plan. Few could retire in dignity without it. Yet it is facing a fiscal crisis. By 2034, without changes, the program will be forced to cut benefits — drastically.

    Some people want to cut benefits. Others want to raise the retirement age, which also means cutting benefits. Others want to raise taxes on benefits — which also means cutting benefits. Others want to hike payroll taxes, either on all of us or (initially) only on very high earners.

    At last — just 40 or so years out of date — some are starting to talk about investing some of the trust fund like nearly every other pension plan in the world, in high-returning stocks instead of just low-returning Treasury bonds. 

    (It is hard for me to believe that it’s now almost 16 years since I first wrote about this ridiculously obvious fix And, yes, I’ve been boring readers on the subject ever since, including here and most recently here, and, no, I have no plans to stop.)

    But if investing some of the trust fund in stocks is a no-brainer, so, too, is insisting everyone obey the law and pay the taxes they actually owe each year. I mean, shouldn’t we do that before we think about raising taxes even further on those who abide by the law?

    How could anyone object? Any party that believes in law and order would support enforcing, er, law and order on tax evasion. And any party of fiscal conservatism would support measures, like tax enforcement, to narrow the deficit.

    And, actually, any party that truly supported lower taxes for all would be tough on tax evasion: It is precisely this $500 billion in evasion by a small, scofflaw minority that forces the rest of us to pay more. We have, quite literally, a tax on obeying the law.

    One of the many arguments in favor of taxing assets or wealth, instead of just income, is that enforcement would be easier and evasion much harder. 

    Washington, D.C., seems to be a place where people come up with complex proposals just so they can avoid the simple, fair ones.

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  • Debt-ceiling deal reached in principle by Biden and McCarthy, vote could come early next week

    Debt-ceiling deal reached in principle by Biden and McCarthy, vote could come early next week

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    WASHINGTON — President Joe Biden and House Speaker Kevin McCarthy reached an “agreement in principle” to raise the nation’s legal debt ceiling late Saturday as they raced to strike a deal to limit federal spending and avert a potentially disastrous U.S. default.

    However, the agreement risks angering both Democratic and Republican sides with the concessions made to reach it. Negotiators agreed to some Republican demands for increased work requirements for recipients of food stamps that had sparked an uproar from House Democrats as a nonstarter.

    Support from both parties will be needed to win congressional approval next week before a June 5 deadline.

    The Democratic president and Republican speaker reached the agreement after the two spoke earlier Saturday evening by phone, said McCarthy. The country and the world have been watching and waiting for a resolution to a political standoff that threatened the U.S. and global economies.

    “The agreement represents a compromise, which means not everyone gets what they want,” Biden said in a statement late Saturday night. “That’s the responsibility of governing,” he said.

    Biden called the agreement “good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost.”

    McCarthy in brief remarks at the Capitol, said that “we still have a lot of work to do.”

    But the Republican speaker said: “I believe this is an agreement in principle that’s worthy of the American people.”

    With the outlines of a deal in place, the legislative package could be drafted and shared with lawmakers in time for votes early next week in the House and later in the Senate.

    Central to the package is a two-year budget deal that would hold spending flat for 2024 and impose limits for 2025 in exchange for raising the debt limit for two years, pushing the volatile political issue past the next presidential election.

    The agreement would limit food stamp eligibility for able-bodied adults up to age 54, but Biden was able to secure waivers for veterans and the homeless.

    The two sides had also reached for an ambitious overhaul of federal permitting to ease development of energy projects and transmission lines. Instead, the agreement puts in place changes in the the National Environmental Policy Act that will designate “a single lead agency” to develop economic reviews, in hopes of streamlining the process.

    The deal came together after Treasury Secretary Janet Yellen told Congress that the United States could default on its debt obligations by June 5 — four days later than previously estimated — if lawmakers did not act in time to raise the federal debt ceiling. The extended “X-date” gave the two sides a bit of extra time as they scrambled for a deal.

    Biden also spoke earlier in the day with Democratic leaders in Congress to discuss the status of the talks.

    The Republican House speaker had gathered top allies behind closed doors at the Capitol as negotiators pushed for a deal that would avoid a first-ever government default while also making spending cuts that House Republicans are demanding.

    But as another day dragged on with financial disaster looming closer, it had appeared some of the problems over policy issues that dogged talks all week remained unresolved.

    Both sides have suggested one of the main holdups was a GOP effort to expand work requirements for recipients of food stamps and other federal aid programs, a longtime Republican goal that Democrats have strenuously opposed. The White House said the Republican proposals were “cruel and senseless.”

    Biden has said the work requirements for Medicaid would be a nonstarter. He seemed potentially open to negotiating minor changes on food stamps, now known as the Supplemental Nutrition Assistance Program, or SNAP, despite objections from rank-and-file Democrats.

    McCarthy, who dashed out before the lunch hour Saturday and arrived back at the Capitol with a big box of takeout, declined to elaborate on those discussions. One of his negotiators, Louisiana Rep. Garret Graves, said there was “not a chance” that Republicans might relent on the work requirements issue.

    Americans and the world were uneasily watching the negotiating brinkmanship that could throw the U.S. economy into chaos and sap world confidence in the nation’s leadership.

    Anxious retirees and others were already making contingency plans for missed checks, with the next Social Security payments due next week.

    Yellen said failure to act by the new date would “cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests.”

    The president, spending part of the weekend at Camp David, continued to talk with his negotiating team multiple times a day, signing off on offers and counteroffers.

    Any deal would need to be a political compromise in a divided Congress. Many of the hard-right Trump-aligned Republicans in Congress have long been skeptical of the Treasury’s projections, and they are pressing McCarthy to hold out.

    Lawmakers are not expected to return to work from the Memorial Day weekend before Tuesday, at the earliest, and McCarthy has promised lawmakers he will abide by the rule to post any bill for 72 hours before voting.

    The Democratic-held Senate has largely stayed out of the negotiations, leaving the talks to Biden and McCarthy. Senate Majority Leader Chuck Schumer of New York has pledged to move quickly to send a compromise package to Biden’s desk.

    Weeks of talks have failed to produce a deal in part because the Biden administration resisted for months on negotiating with McCarthy, arguing that the country’s full faith and credit should not be used as leverage to extract other partisan priorities.

    But House Republicans united behind a plan to cut spending, narrowly passing legislation in late April that would raise the debt ceiling in exchange for the spending reductions.

    With the outlines of a deal in place, the legislative package could be drafted and shared with lawmakers in time for votes early next week in the House and later in the Senate.

    Central to the package is a two-year budget deal that would hold spending flat for 2024 and impose limits for 2025 in exchange for raising the debt limit for two years, pushing the volatile political issue past the next presidential election.

    Background: What’s in the emerging debt-ceiling deal? A cut to IRS funding, among other items.

    Negotiators agreed to some Republican demands for enhanced work requirements on recipients of food stamps that had sparked an uproar from House Democrats as a nonstarter.

    Biden also spoke earlier in the day with Democratic leaders in Congress to discuss the status of the talks, according to three people familiar with the situation, who spoke on condition of anonymity because they were not authorized to discuss the matter publicly.

    The Republican House speaker had gathered top allies behind closed doors at the Capitol as negotiators pushed for a deal that would raise the nation’s borrowing limit and avoid a first-ever default on the federal debt, while also making spending cuts that House Republicans are demanding.

    As he arrived at the Capitol early in the day, McCarthy said that Republican negotiators were “closer to an agreement.”

    McCarthy’s comments had echoed the latest public assessment from Biden, who said Friday evening that bargainers were “very close.” Biden and McCarthy last met face-to-face on the matter Monday.

    Their new discussion Saturday by phone came after Treasury Secretary Janet Yellen told Congress that the United States could default on its debt obligations by June 5 — four days later than previously estimated — if lawmakers do not act in time to raise the federal debt ceiling. The extended “X-date” gives the two sides a bit of extra time as they scramble for a deal.

    Americans and the world were uneasily watching the negotiating brinkmanship that could throw the U.S. economy into chaos and sap world confidence in the nation’s leadership. House negotiators left the Capitol at 2 a.m. the night before, only to return hours later.

    Failure to lift the borrowing limit, now $31 trillion, to pay the nation’s incurred bills, would send shockwaves through the U.S. and global economy. Yellen said failure to act by the new date would “cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests.”

    Anxious retirees and others were already making contingency plans for missed checks, with the next Social Security payments due next week.

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  • A debt-ceiling deal will spark a new worry: Who will buy the deluge of Treasury bills?

    A debt-ceiling deal will spark a new worry: Who will buy the deluge of Treasury bills?

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    When the U.S. debt-ceiling fight finally is resolved, the Treasury is expected to unleash a flood of bill issuance to help refill its coffers run low by the protracted standoff in Washington, D.C., over the government’s borrowing limit.

    Treasury bills are debt issued by the U.S. government that mature in four to 52 weeks. New bill issuance could reach about $1.4 trillion through the end of 2023, with roughly $1 trillion flooding the market before the end of August, according to an estimate from BofA Global strategists.

    They expect the deluge through August to be about five times the supply of an average three-month stretch in years before the pandemic.

    “The good news is that we have a high degree of confidence around who is going to buy it,” said Mark Cabana, rates strategist at BofA Global, in a phone interview with MarketWatch. “The bad news is that it’s not going to be at current levels. Things have to cheapen.”

    Cabana sees a key buyer of bill supply unleashed by a debt-ceiling deal in money-market funds, which have climbed to nearly $5.4 trillion in assets managed since the regional banking crisis erupted in March (see chart).

    So people who yanked billions of dollars in deposits from banks after the collapse of Silicon Valley Bank in March and parked them in money-market funds could end up playing an encore performance in this year’s debt-ceiling drama.

    Money-market funds swell since March, topping $5 trillion in assets


    BofA Global

    Related: Money-market funds swell to record $5.4 trillion as savers pull money from bank deposits

    $2 trillion at Fed repo facility

    Money-market funds have been the main reason why at least $2 trillion consistently sits overnight at the Federal Reserve’s reverse repo facility. The program was last offering a roughly 5% rate, a level Cabana said new Treasury bills might need to exceed by about 10-20 basis points.

    “It’s an unintended consequence of a debt-ceiling deal getting done,” said George Catrambone, head of fixed income Americas at DWS Group, about market expectations for heavy short-term Treasury bill issuance, but he also expects money-market funds, foreign buyers and other institutions auctions to continue as buyers in the market.

    “There’s always buyers. It’s a question of price.”

    President Joe Biden and House Speaker Kevin McCarthy, R-Calif. met Monday to talk about potential ways to raise the $31.4 trillion borrowing limit and to avoid a “doomsday” scenario in financial markets if the U.S. defaults. As talks resumed Wednesday, McCarthy said, “I think we can make progress today.”

    Congress has struck deals each time U.S. public debt has exceeded its debt ceiling in the past, including by suspending it eight times since 2016 (see chart).

    In the past when the U.S. debt-limit has been violated, Congress extended or suspended it


    Refinitive, RiverFront

    That doesn’t mean financial markets have been sitting by idly. The 1-month Treasury yield
    TMUBMUSD01M,
    5.616%
    rose to 5.6% on Wednesday, while the 3-month yield
    TMUBMUSD03M,
    5.350%
    was 5.3%, according to FactSet. Bill maturing around the “X-date,” which could come as soon as June 1, have even higher yields.

    Read: Debt-ceiling angst sends Treasury bill yields toward 6%

    “Those are obviously pretty heady yields,” Catrambone said. “But it also exemplifies the market having to price in potential market disruptions in the month of June,” even though his team, like many in financial markets, expect that eventually “cooler heads will prevail” in Washington as the debt-ceiling standoff heads down to the wire.

    Stocks were lower Wednesday, with the Dow Jones Industrial Average
    DJIA,
    -0.75%
    off almost 300 points, or 0.9%, on pace for a fourth day in a row of losses, according to FactSet. The S&P 500 index
    SPX,
    -0.83%
    was off 0.9% and the Nasdaq Composite Index was down 0.9%.

    How the money ran out

    The Treasury in January hit its borrowing limit and began operating under “extraordinary measures” to avoid a default.

    Cash balances at the Treasury Department have since dwindled to less than $100 billion, according to economists at Jefferies. Barclays strategists estimate its cash balance may fall below $50 billion between June 5-15.

    “Basically, we are just draining our cash account to fund operations while we wait to figure out the debt ceiling,” said Lindsay Rosner, senior portfolio manager at PGIM Fixed Income.

    But when the battle over the debt limit ends in a resolution, she expects longer-dated Treasury yields to increase, as haven buying on fears of potentially a full U.S. government default and a credit rating downgrade will have been taken off the table.

    “The Armageddon, whatever small probability people were pricing in of catastrophe, remove that,” she said. “And that means the worst economic outcome has been removed.”

    That’s also a reason why Rosner has been avoiding ultrashort Treasurys in the eye of the debt-ceiling fight in favor of 2, 3 or 4-year bonds offering some of the highest yields in years.

    “We’re being afforded good yield, good spread, a couple of years out the curve,” she said. “Play that game.”

    Read next: How will the Fed react to the debt ceiling breach? Here are some plays in the playbook.

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  • Debt-ceiling talks: As Biden and McCarthy plan to meet today, analysts say deal is needed by Friday

    Debt-ceiling talks: As Biden and McCarthy plan to meet today, analysts say deal is needed by Friday

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    As President Joe Biden and House Speaker Kevin McCarthy prepare to meet Monday afternoon over the debt-ceiling standoff, it’s really getting to be crunch time.

    “We need to see a deal by Friday to have confidence that it can clear both
    chambers before the June 1 deadline,” Height Capital Markets analysts said in a note.

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  • Biden, McCarthy to meet in person Monday after ‘productive’ debt-ceiling talk

    Biden, McCarthy to meet in person Monday after ‘productive’ debt-ceiling talk

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    WASHINGTON — President Joe Biden will meet in person Monday with House Speaker Kevin McCarthy about averting an economy-wrecking federal default, and the Republican leader expressed cautious optimism about a possible debt ceiling compromise as Washington races to raise America’s borrowing limit before the funds could be depleted early next month.

    The leaders spoke by phone Sunday while the president was returning home on Air Force One after the Group of Seven summit in Japan. McCarthy, R-Calif., told reporters at the Capitol that the call was “productive” and that the on-again, off-again negotiations between his staff and White House representatives would resume in the evening.

    Both sides have said progress was being made but that they remain far apart, and talks had lapsed for part of the weekend. Biden’s Treasury Department has said it could run out of cash as soon as June 1, and Treasury Secretary Janet Yellen said Sunday, “I think that that’s a hard deadline.”

    Read on: Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

    McCarthy said after his call with Biden that “I think we can solve some of these problems if he understands what we’re looking at.” The speaker added, “But I’ve been very clear to him from the very beginning. We have to spend less money than we spent last year.”

    McCarthy emerged from that conversation sounding upbeat and was careful not to criticize Biden’s trip, as he had before, suggesting the president had used his time overseas to insist on Democratic positions that made compromise harder. He did caution, “There’s no agreement on anything.”

    The speaker also gently praised the White House’s negotiating team, saying the sides may have “philosophical” disagreements, but could reach “common ground.”

    “We’re looking at how do we have a victory for this country. How do we solve problems,” McCarthy said. He said he did not think the final legislation would remake the federal budget and the country’s debt, but at least “put us on a path to change the behavior of this runaway spending.”

    The White House confirmed the Monday meeting and late Sunday talks but did not elaborate on the leaders’ call.

    Earlier, Biden used his concluding news conference in Hiroshima, Japan to warn House Republicans that they must move off their “extreme positions” over raising the debt limit and that there would be no agreement to avoid a catastrophic default only on their terms.

    Biden made clear that “it’s time for Republicans to accept that there is no deal to be made solely, solely, on their partisan terms.” He said he had done his part in attempting to raise the borrowing limit so the government can keep paying its bills, by agreeing to significant cuts in spending. “Now it’s time for the other side to move from their extreme position.”

    Biden had been scheduled to travel from Hiroshima to Papua New Guinea and Australia, but cut short his trip in light of the strained negotiations with Capitol Hill.

    Even with a new wave of tax revenue expected soon, perhaps giving both sides more time to negotiate, Yellen said on NBC’s “Meet the Press” that “the odds of reaching June 15, while being able to pay all of our bills, is quite low.”

    GOP lawmakers are holding tight to demands for sharp spending cuts, rejecting the alternatives proposed by the White House for reducing deficits.

    Republicans want work requirements on the Medicaid health care program, though the Biden administration has countered that millions of people could lose coverage. The GOP additionally introduced new cuts to food aid by restricting states’ ability to waive work requirements in places with high joblessness. That idea, when floated under President Donald Trump, was estimated to cause 700,000 people to lose their food benefits.

    GOP lawmakers are also seeking cuts in IRS money and asking the White House to accept parts of their proposed immigration overhaul.

    The White House has countered by keeping defense and nondefense spending flat next year, which would save $90 billion in the 2024 budget year and $1 trillion over 10 years.

    “I think that we can reach an agreement,” Biden said, though he added this about Republicans: “I can’t guarantee that they wouldn’t force a default by doing something outrageous.”

    Republicans had also rejected White House proposals to raise revenues in order to further lower deficits. Among the proposals the GOP objects to are policies that would enable Medicare to pay less for prescription drugs and the closing of a dozen tax loopholes. Republicans have refused to roll back the Trump-era tax breaks on corporations and wealthy households as Biden’s own budget has proposed.

    Biden, nonetheless, insisted that “revenue is not off the table.”

    For months, Biden had refused to engage in talks over the debt limit, contending that Republicans in Congress were trying to use the borrowing limit vote as leverage to extract administration concessions on other policy priorities.

    But with the June 1 potential deadline looming and Republicans putting their own legislation on the table, the White House launched talks on a budget deal that could accompany an increase in the debt limit.

    Biden’s decision to set up a call with McCarthy came after another start-stop day with no outward signs of progress. Food was brought to the negotiating room at the Capitol on Saturday morning, only to be carted away hours later. Talks, though, could resume later Sunday after the Biden-McCarthy conversation.

    The president tried to assure leaders attending the meeting of the world’s most powerful democracies that the United States would not default. U.S. officials said leaders were concerned, but largely confident that Biden and American lawmakers would resolve the crisis.

    The president, though, said he was ruling out the possibility of taking action on his own to avoid a default. Any such steps, including suggestions to invoke the 14th Amendment as a solution, would become tied up in the courts.

    “That’s a question that I think is unresolved,” Biden said, adding he hopes to try to get the judiciary to weigh in on the notion for the future.

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  • Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

    Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

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    President Joe Biden on Sunday called for Republicans to agree to compromises in debt-ceiling negotiations, as he wrapped up a visit to Japan for a G-7 summit and prepared to fly back to Washington, D.C.

    “Now it’s time for the other side to move from their extreme positions, because much of what they’ve already proposed is simply, quite frankly, unacceptable,” Biden said during a news conference in Japan.

    “It’s time for Republicans to accept that there is no bipartisan deal to be made solely — solely — on their partisan terms. They have to move, as well,” he said.

    Biden’s comments on movement were similar to what House Speaker Kevin McCarthy said two days ago. The House Republican from south-central California told reporters on Friday that there needs to be “movement by the White House, and we don’t have any movement yet, so, yeah, we’ve got to pause.”

    Rep. Garret Graves, a Louisiana Republican deputized by McCarthy to lead the talks, had earlier Friday characterized Republicans as pressing a pause button after prior reports that a deal framework was coming into view, 

    The president’s remarks in Hiroshima came as investors are watching for fresh signs of a bipartisan deal that would lift the federal government’s borrowing limit and prevent a market-shaking default.

    Biden accused some Republicans of risking the economic damage of a default because of the 2024 White House race.

    “I think there are some MAGA Republicans in the House who know the damage that it would do to the economy, and because I am president and presidents are responsible for everything, Biden would take the blame, and that’s the one way to make sure Biden is not re-elected,” he said.

    During Sunday’s news conference, Biden, who cut short his trip because of the looming debt-ceiling crisis (leading to the cancellation of a Quad summit in Australia), said he and McCarthy will be talking later Sunday while he is flying back to the U.S.

    “My guess is he’s going to want to deal directly with me,” the president said, adding that it had to do with “making sure we’re on the same page.”

    “Our teams are going to continue working,” Biden also said.

    When asked about McCarthy’s call for government spending to be less next year than this year, Biden said his side is “willing to cut spending, as well as raise revenue,” referring to tax increases. He also said his team is waiting for a GOP response to the White House’s latest counterproposal.

    Graves, the Louisiana Republican, had, with his Friday-morning characterization of debt-ceiling negotiations as at a “pause,” suggested the Biden White House’s representatives were being “unreasonable.” Talks resumed Friday evening, but negotiators quickly called it quits for the night, and there was little progress reported Saturday, with McCarthy telling reporters that he didn’t think there would be an ability to “move forward until the president can get back.”

    Treasury Secretary Janet Yellen warned on May 1 and again last week that a U.S. default could happen as soon as June 1 if Congress doesn’t raise the debt ceiling. The Bipartisan Policy Center and Congressional Budget Office have each offered similar projections.

    Biden had for months called for a so-called clean increase of the $31.4 trillion cap on federal debt issuance, arguing that the time to address the levels of future government spending is instead during the annual budget-writing process.

    In August 2011, lawmakers approved an increase to the debt limit just hours before a potential government default. Within days, the U.S. lost its triple-A credit rating from S&P for the first time in history, with the ratings agency saying the American political system had become less stable. U.S. stocks 
    SPX,
    -0.14%

    DJIA,
    -0.33%
    plunged in August 2011 following that debt downgrade by S&P.

    Now read:

    Debt-ceiling standoff: Here’s what could go into a bipartisan deal

    Biden expresses confidence on achieving debt-ceiling deal: ‘America will not default’

    ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

    Ukraine’s Zelensky takes part in G-7 summit n Hiroshima as world leaders sanction Russia

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  • Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

    Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

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    President Joe Biden on Sunday called for Republicans to agree to compromises in debt-ceiling negotiations, as he wrapped up a visit to Japan for a G-7 summit and prepared to fly back to Washington, D.C.

    “Now it’s time for the other side to move from their extreme positions, because much of what they’ve already proposed is simply, quite frankly, unacceptable,” Biden said during a news conference in Japan.

    “It’s time for Republicans to accept that there is no bipartisan deal to be made solely — solely — on their partisan terms. They have to move, as well,” he said.

    Biden’s comments on movement were similar to what House Speaker Kevin McCarthy said two days ago. The House Republican from south-central California told reporters on Friday that there needs to be “movement by the White House, and we don’t have any movement yet, so, yeah, we’ve got to pause.”

    Rep. Garret Graves, a Louisiana Republican deputized by McCarthy to lead the talks, had earlier Friday characterized Republicans as pressing a pause button after prior reports that a deal framework was coming into view, 

    The president’s remarks in Hiroshima came as investors are watching for fresh signs of a bipartisan deal that would lift the federal government’s borrowing limit and prevent a market-shaking default.

    Biden accused some Republicans of risking the economic damage of a default because of the 2024 White House race.

    “I think there are some MAGA Republicans in the House who know the damage that it would do to the economy, and because I am president and presidents are responsible for everything, Biden would take the blame, and that’s the one way to make sure Biden is not re-elected,” he said.

    During Sunday’s news conference, Biden, who cut short his trip because of the looming debt-ceiling crisis (leading to the cancellation of a Quad summit in Australia), said he and McCarthy will be talking later Sunday while he is flying back to the U.S.

    “My guess is he’s going to want to deal directly with me,” the president said, adding that it had to do with “making sure we’re on the same page.”

    “Our teams are going to continue working,” Biden also said.

    When asked about McCarthy’s call for government spending to be less next year than this year, Biden said his side is “willing to cut spending, as well as raise revenue,” referring to tax increases. He also said his team is waiting for a GOP response to the White House’s latest counterproposal.

    Graves, the Louisiana Republican, had, with his Friday-morning characterization of debt-ceiling negotiations as at a “pause,” suggested the Biden White House’s representatives were being “unreasonable.” Talks resumed Friday evening, but negotiators quickly called it quits for the night, and there was little progress reported Saturday, with McCarthy telling reporters that he didn’t think there would be an ability to “move forward until the president can get back.”

    Treasury Secretary Janet Yellen warned on May 1 and again last week that a U.S. default could happen as soon as June 1 if Congress doesn’t raise the debt ceiling. The Bipartisan Policy Center and Congressional Budget Office have each offered similar projections.

    Biden had for months called for a so-called clean increase of the $31.4 trillion cap on federal debt issuance, arguing that the time to address the levels of future government spending is instead during the annual budget-writing process.

    In August 2011, lawmakers approved an increase to the debt limit just hours before a potential government default. Within days, the U.S. lost its triple-A credit rating from S&P for the first time in history, with the ratings agency saying the American political system had become less stable. U.S. stocks 
    SPX,
    -0.14%

    DJIA,
    -0.33%
    plunged in August 2011 following that debt downgrade by S&P.

    Now read:

    Debt-ceiling standoff: Here’s what could go into a bipartisan deal

    Biden expresses confidence on achieving debt-ceiling deal: ‘America will not default’

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  • Biden describes debt-ceiling meeting as ‘productive,’ but McCarthy says he ‘didn’t see any new movement’

    Biden describes debt-ceiling meeting as ‘productive,’ but McCarthy says he ‘didn’t see any new movement’

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    House Speaker Kevin McCarthy on Tuesday said he “didn’t see any new movement” toward ending Washington’s standoff over the debt ceiling, as he assessed how a much-anticipated meeting on the issue went.

    President Joe Biden hosted the meeting at the White House with the country’s four top lawmakers, and beforehand analysts had predicted it would not result in a deal.

    McCarthy…

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  • Debt-ceiling deal not looking likely yet as Biden meets with McCarthy and other lawmakers

    Debt-ceiling deal not looking likely yet as Biden meets with McCarthy and other lawmakers

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    As President Joe Biden prepares to host a much-anticipated meeting on the U.S. debt ceiling with the country’s four top lawmakers, analysts are predicting there won’t be a deal yet on this issue.

    If the meeting at the White House, scheduled for around 4 p.m. Eastern time Tuesday, were to conclude with an agreement, that would be very surprising, said Chris Krueger, managing director at TD Cowen’s Washington Research Group, in a note on Tuesday.

    The…

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  • The government may stop issuing Social Security payments after the debt limit is hit — here’s why

    The government may stop issuing Social Security payments after the debt limit is hit — here’s why

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    There’s a very real possibility the government will stop issuing Social Security payments after the debt limit is hit.

    Scary as that prospect is, however, the alternative might be even worse: A little-known provision of a 1996 law could be interpreted to allow the Social Security trust fund to be used not only to pay Social Security’s monthly checks but also to circumvent the debt limit and pay all the government’s otherwise overdue bills.

    If that happens, any short-term relief to Social Security recipients would come with a potentially huge long-term price tag: The Social Security trust fund could be exhausted much sooner than currently projected—in just a couple of years, in fact.

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    These dire possibilities emerge from an analysis conducted by Steve Robinson, the chief economist for The Concord Coalition, a group that describes itself as “a nonpartisan organization dedicated to educating the public and finding common sense solutions to our nation’s fiscal policy challenges.”

    An issue brief he wrote, entitled “Social Security’s Debt Limit Escape Clause,” is available on the group’s website.

    Let me hasten to add that Robinson is not advocating that the Social Security trust fund be used in this way. In an interview, he instead stressed that he wrote his issue brief because we need to be aware not only that this “escape clause” exists but that its use could have unintended consequences. Though hardly anyone outside Washington knows that it even exists, and relatively few on Capitol Hill, the Treasury Department and the Social Security Administration are very much aware of it.

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    Before reviewing the details of this escape clause, it’s worth focusing on the political dynamics that surround it. Because the escape clause lessens the pressure on Congress and the president to come up with a solution to the debt crisis, neither side has an incentive to publicize its existence. But if the government is otherwise pushed to the edge of the fiscal cliff, and it’s facing the potentially huge consequences of an outright default (including the nonpayment of monthly Social Security checks), the political pressure to use the escape clause could be intense.

    The 1996 law that creates the escape clause was passed in the wake of the government hitting its debt limit in 1995 and 1996. Ironically, the intent of that law was to prevent the Social Security trust fund from being used for anything other than paying Social Security benefits. But, Robinson explains, that’s unworkable in the real world. That’s because Social Security checks are sent out by the Treasury’s general account, and if that account is in default the checks would bounce.

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    If and when the debt limit is hit, therefore, the only way—in practice—for Social Security checks to continue being issued and cleared through the banking system would be for the Social Security trust fund to “lend” the Treasury sufficient funds that it could pay all the government’s unmet obligations. (I put “lend” in quotes because that’s not exactly how it works; the key is that the “loan” can be structured in ways that don’t count against the debt limit. If you’re interested in reading more about the complex logistics involved, you should read Robinson’s issue brief.)

    Therefore, if the debt limit is hit, which it is projected to do perhaps as early as June, Congress and the president will be on the horns of a huge dilemma:

    • Do they allow Social Security checks to continue getting paid, risking the political fallout of being accused of “raiding” the Social Security trust fund?

    • Or do they stop issuing Social Security payments, risking the political fallout of not issuing Social Security payments, on whom the very livelihoods of many elderly currently depend?

    You can appreciate why Congress and the president don’t want us to know that this escape clause exists. Once we are aware of it, they are put in a no-win situation.

    So fasten your seat belts for a wild ride in coming months as both parties play political brinkmanship over the debt limit and, by extension, Social Security. With both sides by the day hardening their stances, there’s a very real possibility that the debt limit will be hit.

    If that happens, we’ll be hearing a lot more about the little-known provision of a nearly 30-year-old law.

    Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

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