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US government shutdown looms larger for investors

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US government shutdown updates

The “debt ceiling” trap is looming larger for the Biden administration and proponents of its $3.5tn social spending package. Likewise for markets.

Under a July 2019 deal, the debt ceiling law was suspended until August 1 this year. Now with the law back in force, both Democrats and Republicans may be underestimating the trouble it might cause.

New borrowing by the US Treasury is not permitted unless a new “debt ceiling” law is passed that allows borrowing above the existing level of about $28.5tn.

That means the government at some point must go into a partial shutdown without, at a minimum, a new debt service law and a short term “continuing resolution” for funding.

Even without new programmes, spending on operations such as flood relief, Covid-19 control and the Afghanistan pullout and resettlement will bump…

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