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Should markets crash before Congress raises the debt ceiling?

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WASHINGTON (AP) There are ways to force President Joe Biden and Congress to resolve the crisis over the looming debt ceiling.
financial market crash.

Several economists and former White House officials hold that view, knowing that Congress rarely acts unless an emergency compels lawmakers to do so.

“For this drama not to end in tragedy, the main characters must do their part,” said Daleep, Biden’s national security adviser on international economics and deputy director of the National Economic Council. Shin said. “Market participants play a leading role by playing the victim. You have to create pain. Politicians have to look at Bloomberg screens, so they have to create a red sea on Bloomberg screens.

Republicans and Democrats have fought over the need to strengthen the government’s legal borrowing powers. Biden tried to get closer Thursday by announcing a budget that cuts the deficit by $2.9 trillion over 10 years. Republicans in the House Liberal caucuses put forward their own demands on Friday, which the White House quickly rejected.

This fandango could go on for a few more months until the last possible moment if the federal government hits a currently unknown “X-date” (probably as early as June), and it’s possible to pay the bills. The default flash could suddenly be triggered without being able to do millions of jobs lost.

It’s a famous ritual. But Congress has so far reached agreement on a debt ceiling every other time. The question today, with increasing political polarization, is whether things are different today.

“All the major economic institutions, conservatives and liberals alike, are saying this is going to cause a big recession, a big recession,” Biden said of a possible default. rice field. his budget in Philadelphia.

Mr McCarthy has promised to put together his own budget plan, but as long as the stock market remains relatively calm, there is little to rush to complete any type of deal. He said he hopes to reach an agreement to lead the way to a budget. But he also ruled out tax increases or cuts to Social Security and Medicare that would force controversial and significant federal spending cuts that could divide Republicans in the House.

Biden, who cuts the deficit primarily through higher taxes on the wealthy and businesses, said he was ready to move forward with the budget deal “line by line” once McCarthy got the numbers.

But as the X-Date approaches this summer and the market opens up, McCarthy’s influence is at its peak. So far this year, the S&P 500 stock index is positive. The Federal Reserve’s (Fed) policy to contain inflation, or the collapse of the Silicon Valley Bank on Friday, has made a big shift in events apart from the debt ceiling. The massive sell-off over the debt ceiling tensions has brought immediate clarity and increased recognition that everyone can get out of the ideological stagnation.No one is arguing a market collapse, but As Republican lawmakers consider the possibility of prioritizing the repayment of creditors, there is a sense that it is a risky short-term solution and the market needs to urge Congress to act.

“Unfortunately, it will likely take a major financial market event before Biden and the Republican Party compromise on the debt ceiling,” said Joe Bruce Elas, chief economist at consulting firm RSM US. .and medium-sized enterprises.

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