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Optimism is driving markets to record levels


Negotiations to raise the public debt ceiling continue between the White House and Republicans in Congress. Although the two parties expressed optimism about the progress of these negotiations, the frameworks for reaching an agreement are still far from being reached, especially in light of the absence of US President Joe Biden from Washington to attend the G-7 summit in Japan, and the Senate adjourned its sessions to May 30. ), that is, a few days before the possibility of America defaulting, according to estimates by the Treasury Department.

The “Washington Report” program, which is the fruit of cooperation between “Asharq Al-Awsat” and “Al-Sharq”, reviews the political tensions between the two parties in the file of raising the public debt ceiling, and evaluates solutions and risks in the event of America’s default.

Mark Calabria, a senior advisor at the CATO Institute and former director of the Federal Housing Finance Agency under former President Donald Trump, rules out America reaching the point of default, indicating that the Treasury has a mechanism to continue paying debts. “I think there is a very small chance of default because we have the mechanism to avoid it,” says Calabria.

Referring to his previous work in the White House, Calabria said: “I am 100 percent sure that the Treasury has the ability to raise the public debt ceiling in absentia even to pay off the debt. The Treasury can prioritize repayments and will almost certainly prioritize debt repayments followed by payments to trust funds such as Social Security; There are a number of discretionary programs that could see delays in payments and obligations, but for there to be a complete default in debt repayment, I think it is unlikely.

Cayden Shroff, a senior advisor to the American Education Institute and a strategist in the Democratic Party, opposes this approach, directing sharp criticism of Republicans who “turned the issue of public debt into a partisan issue.” Shroff considered that the United States had “raised or amended the debt ceiling about 80 times since 1960, 49 of which were under a Republican president.” He accused the Republicans of “endangering the US economy and the entire global economy” with their “maneuvers.”

But Politico’s correspondent at the White House considered it natural for the Republicans to seek concessions, especially since they control the majority in the House of Representatives and “have enough influence to extract concessions.” Daniel Lippman noted that Biden sought to delay the start of negotiations as part of a negotiating strategy. He explained, “He refused to negotiate months ago because he wanted to reduce the concessions he would give to the Republicans to raise the debt ceiling.”

In light of the internal and international tension over the possibility of America’s default, Calabria tried to reassure these fears, stressing that an agreement would be reached. He said: «In the end, an agreement will be reached, and all parties will make concessions, and we will continue to move forward. Our system is not a parliamentary system, we have checks and balances, and there are different powers within our system. The House of Representatives, for example, has a unique role in the budget-setting process. This is all normal, as everyone tries to use the influence they have.

Calabria reiterated his assertion that the US Treasury “has full capacity to avoid default, even in the absence of a rise in the public debt ceiling.” However, this reassurance does not fall on deaf ears from many in the United States who recall the 2011 crisis, when political tensions over the public debt file between Republican House Speaker John Boehner and Democratic President Barack Obama led the United States to lose a point in its credit rating.

This is what Lippman talked about, saying: “The White House does not want the United States to default on its debts, as this could harm us greatly, and lead to millions losing their jobs, which will lead to a financial crisis. He also does not want the United States to decline in its credit rating, as this raises the cost of borrowing.

This was agreed by Sharrouf, who warned: “Regardless of whether an agreement is reached or not at the last minute, the closer we get to the deadline, the more fearful the markets will become. This in itself leads to economic damage to the American people.

In light of the heated public debate between Democrats and Republicans, officials in the US administration are sounding the alarm, warning of the repercussions of the internal conflict on the US reputation abroad, and its relationship with its allies and opponents. While US Secretary of Defense Lloyd Austin warned that the allies “are wondering whether we will be able to implement the programs they are working on with us,” the Chairman of the Joint Chiefs of Staff, General Mark Milley, considered that what is happening “enhances China’s strength and increases the risks facing the United States.”

In response to these warnings, Calabria expressed his disappointment with “the involvement of government ministers such as defense and treasury in exaggeration for purely political goals,” indicating that the Treasury will give priority to the Ministry of Defense. “There is no doubt that members of the Ministry of Defense will get their wages,” he said. I think we are engaging in unnecessary scare tactics – there are huge sums of money earmarked for spending even after the pandemic that haven’t been spent yet, which means there is a high capacity and resilience to continue.

For his part, Lippman considered that Biden’s cancellation of his visit to Australia sends the wrong message to China. He could not complete his full tour and emphasize the importance of these countries, and his support for them.

In the midst of political tensions, some Democrats put forward the idea of ​​hiring Biden for the 14th Amendment to the Constitution, believing that it gives the US President the power to give orders to the Treasury Department to continue to borrow money, and to ignore the public debt ceiling without going back to Congress. Shroff is among the Democrats who considered that the Republicans “are using the public debt ceiling as a political weapon. (Therefore,) Biden offering some unusual solutions, which we can try, is fair.

But Biden is reticent about using procedures of this kind to bypass Congress, as it opens the way for lawsuits to challenge the “abuse of executive powers.” Lippman spoke about this point, pointing out that “the American courts are very conservative these days, so they will challenge what Biden has done, considering the use of the Fourteenth Amendment in this way as unconstitutional.” Lippman added, “Biden wanted to do what all presidents have done in the last two decades, which is to negotiate an agreement with the opposition to raise the public debt ceiling.”

As for Calabria, he categorically rejected the idea of ​​the 14th Amendment, stressing that “the ceiling of public debt is not defined by law. And I don’t think the Fourteenth Amendment allows debt to simply increase. Calabria again sought to reassure fears and mitigate warnings that America would default by June 1. The global observer should expect the month of June to be full of heated debates, most of which will be smoke without any fire. And in late June, we will see the signing of an agreement in which everyone has given up on something. They will not be happy, but we will reach a solution and the debt and dues will be paid, and there will be small adjustments to spending.”