Not only the energy crisis that has been occurring for weeks, triggered by the bottlenecks of supply chains and the fears of supply shortages that are causing oil and natural gas prices to soar. Not only, therefore, fear of inflation, also of stagflation.
Markets are facing a risk on which US Treasury Secretary Janet Yellen has sounded an alarm bell in the past few hours: that of a US recession, which could materialize if Capitol Hill fails to raise or suspend the debt ceiling by the October 18 deadline.
There are less than two weeks left: the imperative is to act immediately: “I consider October 18th to be the deadline. It would be catastrophic not to pay the government bills, to find ourselves in the position of not having the resources necessary to pay the government bills, “said Yellen, speaking in the CNBC broadcast” Squawk Box “, referring to the risk that the United States would make a unprecedented default.
If ten-year and thirty-year rates discount the prospect of a further flare-up in inflation, short-term Treasury rates are paying for the fear of a US-made default, so much so that, yesterday, the yields of T-bills at a month they shot up at 0.1450%, the record since October 2020.
Joe Biden furious with Republicans: $ 8 trillion in debt to Trump
In the last few hours, an alert was also launched by the president of the United States Joe Biden, who blamed the standstill in Congress on Republicans.
“Not only are the Republicans not doing their job – he thundered – But they are threatening to use their power to stop us from doing our job, which is to save the economy from a catastrophic event. I frankly believe that all of this is hypocritical, dangerous, scandalous ”. Any “failure to raise the debt limit will fuel doubts about Congress’s willingness to honor debts that have already been incurred – not new debts – debts that already exist. And this would undermine the security of US Treasuries and it reserve status of the dollar as a global currency, on which the world relies ”.
The president continued:
“The US debt rating would be cut, and rates on mortgages, on loans for car purchases, as well as rates on loans and credit cards would rise ”.
Asked by a reporter, who asked him if he could somehow give a guarantee that the debt ceiling will be raised before the October 18 deadline, Biden was forced to raise his hands:
“No, I can’t… it’s up to Mitch McConnell (Republican minority leader in the Senate) to do it… I can’t come to believe that this (the default) could be the final result, because the consequences would be really dramatic. I don’t think it will happen, but can I guarantee it won’t? If I could, I would, but I can’t “.
The impasse in Congress remains: McConnell, reports CNN, argues that Democrats should manage debt ceiling issue alone, using a special budget process known as reconciliation, which would not require a Republican vote.
But the leaders of the Democratic majority in the US House and Senate, respectively Nancy Pelosi e Chuck Schumer they have already opposed the proposal, believing that Republicans have a responsibility to contribute to the payment of debts, which have been incurred by both parties.
In his speech, Biden said Congress should raise the debt ceiling too for “reckless policies in terms of expenses and taxes” launched during the administration of its predecessor Donald Trump:
“The Republicans of Congress they raised the roof three times when Donald Trump was president, and each time with the support of the Democrats. But now they do not want to raise it, even though they are responsible for debt in excess of $ 8 trillion, contracted in four years under the previous government ”.
And again: “They do not want to increase it even if a default on the debt would result in a wound that would lead to our economy on the brink, putting jobs and retirement savings, social security benefits, the salaries of those who work for the government, aid to veterans, and much more at risk ”.
Yellen: US Treasuries and dollar at risk
Moreover, as Yellen herself warned, foreign countries could react to the risk of a US default by starting to demobilize the US government bonds they hold, also drowning the demand for dollars, a factor that would be in favor of China, which hopes that the power of the greenback will sooner or later be replaced by the yuan.
“US government bonds have been considered for a long time the safest assets on the planet – said Yellen – Partly thanks to the dollar’s reserve currency status ”.
According to the US Secretary of State, if the United States were no longer able to honor its debts, the strength of the Treasuries and dollars would be questioned, with “Truly catastrophic consequences”.
But McConnell seems to want to go his own way, and reiterates that no Republican exponent will help raise the debt ceiling ahead of the 2022 mid-term elections.
“Since mid-July, Republicans have clearly said that it must be the Democrats, alone, to raise the limit – reads a letter that the Republican minority leader in the Senate sent to Biden – A bipartisan agreement is not like a light switch, which Speaker Pelosi and leader Schumer can turn on to borrow money and turn off when they want to spend ”.
For “two and a half months, we simply felt that, since your party wants to govern alone, it must also manage the debt alone“, McConnell specified, referring to the reconciliation process.
The reconciliation process bypasses some Capitol Hill procedures typically followed for approving most proposals. With such a gimmick, the Democrats could push through the suspension or increase of the debt ceiling with a simple majority, without therefore having to collect the 60 votes normally required for approval. The support of the Republicans, therefore, would be superfluous. For their part, the Republicans could claim in the upcoming elections that they have not raised the limit placed on US debt further.
It must be said that the alert was not launched ‘only’ by Yellen, Biden and obviously a wide audience of analysts and economists: the same rating agency Fitch, days ago, stressed that the same credit rating could be at risk assigned to the USA, or the Triple A.
And in late September Jamie Dimon, JP Morgan’s number one, admitted that the bank is preparing for the eventuality of disaster.