FINALLY, U.S. ADMITS IT’S ON THE BRINK OF ‘ECONOMIC & FINANCIAL CATASTROPHE’ – ECHOING ELON MUSK, WHO 2 WEEKS AGO PREDICTED, ‘IT’S A MATTER OF WHEN, NOT IF, THE U.S. DEFAULTS – EVEN AS CHINESE MEDIA WARN U.S. HEADING FOR ANOTHER BANKING CRISIS AFTER SVB & SIGNATURE BANK CALM BEFORE THE REAL STORM
US warns of ‘economic catastrophe’
A failure by the US to raise its debt ceiling would lead to an economic and financial crisis in the country, Treasury Secretary Janet Yellen has cautioned, urging lawmakers to act and not wait “until the last minute.”
The debt ceiling is the maximum amount the US government is legally authorized to borrow to meet its obligations.
Yellen warned during a meeting with business executives from California on Tuesday that a default would result in job losses and push household payments on mortgages and credit cards higher.
The Treasury secretary insisted it was a “basic responsibility” of Congress to increase or suspend the $31.4 trillion borrowing cap.
“A default on our debt would produce an economic and financial catastrophe,” she said, adding: “A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly.”
According to Yellen, US businesses would face deteriorating credit markets and the government would likely be unable to issue payments to military families and seniors who rely on Social Security.
“Congress must vote to raise or suspend the debt limit. It should do so without conditions. And it should not wait until the last minute,” she urged.
The warning comes as the White House and Republicans in Congress are at an impasse over raising the debt ceiling.
Last week, US House of Representatives Speaker Kevin McCarthy floated a plan that includes a $4.5 trillion cut to government spending in order to raise the debt limit by $1.5 trillion.
The White House insists that the two issues should not be linked, while the Democratic-controlled Senate is likely to reject the proposal.
McCarthy earlier warned that the US debt is unsustainable and poses a threat to the nation.
Meanwhile, White House Press Secretary Karine Jean-Pierre claimed late last month that Republicans were threatening to wreak havoc on the US economy, saying that it was time for the GOP to “stop playing games” and agree to pass a “clean” debt ceiling bill.
In January, the Treasury Department notified Congress of the start of “extraordinary measures” that would allow the government to continue paying its obligations until early June, as the US reached its $31.4 trillion debt limit. Yellen then called on lawmakers to “act promptly” to increase borrowing limits in order to avoid a default. RT
GT Voice: Lingering bank liquidity risks drive US to brink of crisis again
Fears of further bank collapses after the failures of Silicon Valley Bank and Signature Bank are seemingly haunting the market again as US regional banks at the heart of the liquidity crunch storm continue to struggle to stay afloat. It proves one thing that the Biden administration can hardly find quick fix to crisis incurred by long-time problems.
First Republic Bank, which saw its stocks close down about 50 percent on Tuesday, is exploring an asset sale of up to $100 billion as part of a broader rescue plan, according to Bloomberg News.
The development came after the US bank surprised the market on Monday by disclosing its deposit fell 40.8 percent, or more than $100 billion, to $104.5 billion in the first quarter, despite a temporary $30 billion lifeline from some large banks last month.
It goes without saying that the latest earnings report by First Republic heightened concerns about deposit outflows, asset-liability mismatch, and credit crunch in regional banks. After the Biden administration assured the market last month the US banking system is safe, the sharp deposit exodus clearly says the opposite, or at least the crisis of confidence in regional banks is not over.
In addition to First Republic, quite a number of regional banks have also reported deposit outflows in their latest earnings report for the first quarter. Last week, Moody’s Investor Services downgraded 11 regional banks, according to media reports.
It should be noted that by various standards, First Republic’s business operation is not very problematic, and its non-performing loan ratio is not at a high level. But the plunge in its share price suggests that investors’ worries could be enough to push it back into huge trouble, triggering a new round of bank run.
Fundamentally speaking, after the failures of Silicon Valley Bank and Signature Bank, market fears of the liquidity crunch have not been fully repaired. And the fragile market confidence may push the US to the brink of another financial crisis. If the market panic over regional banks’ liquidity was reignited, depositors would be again desperate to pull their money out of the banks.
And the scenario that more banks may go into trouble could drive the US economy into a predicament. This is because once banks had problems, they would not be able to offer support to companies in various sectors, which may fail down and lead to unemployment and sluggish consumption, prompting an economic recession. In fact, the latest news that US retail giant Bed Bath & Beyond on Sunday filed for Chapter 11 bankruptcy protection after failing to raise enough money to keep the company alive may just serve as the latest sign in such development.
The Biden administration had already made various efforts to stabilize market sentiment, which may have seen some effects, but temporary bailout plan has become increasingly ineffective and no one knows what will come next and whether the country could narrowly avoid a crisis. Now US President Joe Biden has formally announced his bid for reelection, but economic problems, if broke out, could be a huge drag on his campaign.
Crises are never created in a single day. The root causes of the potential economic crisis have actually been derived from some of the US long-term policies, including the monetary one. To maintain the false prosperity, the Federal Reserve adopted unlimited money printing, leading to soaring inflation. Then, the Fed’s tightening monetary policy aimed at taming in inflation created new problems for the financial markets, risking a new round of economic crisis.
Meanwhile, the US’ “decoupling” push from China may also play a role. China is a major supplier of goods to the US. If the Biden administration cannot lower tariffs on Chinese imports, “decoupling” from China will have big impacts on the low- and medium-end consumption in the US. Many countries could be affected as their entire economic structure and market are related to the US and have to adjust based on the “decoupling” policy. The global industrial chains are forced to adjust under the US push, which will eventually lead to liquidity problems in the supply chains. Therefore, during the process of the US linking economic issues with geopolitics and China policy, low- and middle-end consumption in the US could be seriously subdued. GT
US debt default a matter of time – Musk
Tesla and Twitter chief executive Elon Musk, who has been calling for US government spending reductions, said on Wednesday that a debt default was just a question of time.
“Given Federal expenditures, it is a matter of when, not if, we default,” Musk wrote responding to a Twitter post by the White House that the Republican plan may be to default on US debt.
Earlier this week, US House of Representatives Speaker Kevin McCarthy warned in a speech at the New York Stock Exchange that the US debt is unsustainable and poses a threat to the nation. He said that Republicans would not allow the country to default on its debt, taking a jab at President Biden for refusing to negotiate on cost-cutting measures.
McCarthy added that the House of Representatives would soon vote on a bill to raise the debt ceiling through 2023.
US President Joe Biden urged the Republicans to first release their proposed budget, with the White House stressing it would not negotiate the debt ceiling until the GOP releases its counterproposal to the administration’s budget plan, which was put out in March.
White House Press Secretary Karine Jean-Pierre alleged late last month that the Republicans were threatening to wreak havoc on US economy, saying that it was time for the GOP to “stop playing games” and agree to pass a “clean” debt ceiling bill.
In January, the Treasury Department notified Congress of the start of “extraordinary measures” until June 5 in order to continue paying the government’s obligations as the US has reached its $31.4 trillion debt limit. Treasury Secretary Janet Yellen then called on lawmakers to “act promptly” to increase borrowing limits in order to avoid a default. RT
RT.COM / GLOBAL TIMES
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