US Debt Ceiling a Greater Threat Than the Shutdown

The second US partial government shutdown had been avoided after a bipartisan bill passed by both chambers of Congress was signed by President Donald Trump.

Even though he did not get funding for its border wall campaign promise, he decided to sign the funding bill and declare a national emergency, a move that it is widely believed to exceed its authority. Democrats are likely to challenge the decision in court, but until a resolution will be found the government can function properly.

Debt Ceiling on March 1st

Problems for US government funding are far from being over since we have the debt ceiling on March 1st. The United States had been forced to raise the max. amount of money it can borrow several times in the last few years and each time the democrats and the republicans found common ground very hard.

Financial markets and the online trading environment as a whole might find themselves under pressure, given that since the beginning of January we have the democrats controlling the House of Representatives, and the Republicans with a majority in the Senate.

A mutual agreement and the risk of President Donald Trump vetoing a potential deal might push debt ceiling further for a few months, probably until autumn.

Government funding after March 1st

As seen in the past, the Treasury has the ability to fund itself for several months after the deadline, using some extraordinary measures. Still, hardships will begin to occur starting from summer, if both parties won’t manage to reach an agreement.

With the latest tax reform, US government deficit ballooned in the 2018 fiscal year, reaching $779 billion, 17% higher as compared to a year ago. The worse news is the projections, the deficit is expected to exceed $1 trillion in 2020.

With such a big fiscal deficit, the US Treasury will need to issue a lot of bonds and with no debt ceiling increase, a negative spiral of events might start to unfold.

Fitch Ratings had already acknowledged that the debt limit is a real risk for the US AAA credit score. A downgrade or even a negative change in outlook could mean the funding will be made at much higher costs. The bonds market could become more volatile and its performance might influence the entire online trading world, including the stock market and the value of the US dollar.

About The Author

Related posts