Discussion on global economy and financial markets - Page 37

What is debt ceiling ? Will it help equity mkts ?

Originally posted by: mishkil88

What is debt ceiling ? Will it help equity mkts ?

What is the debt ceiling?

Created by Congress in 1917, the debt limit, or ceiling, sets the maximum amount of outstanding federal debt the U.S. government can incur. In January 2023, the total national debt and the debt ceiling both stood at $31.4 trillion. The U.S. government has run a deficit averaging nearly $1 trillion every year since 2001, meaning it spends that much more money than it receives in taxes and other revenue. To make up the difference, it has to borrow to continue to finance payments that Congress has already authorized.

Since 1960, Congress has increased the ceiling seventy-eight times, most recently in 2021. Forty-nine of these increases were implemented under Republican presidents, and twenty-nine were under Democratic presidents.

What would be the consequences if the United States breaches the debt ceiling?

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the U.S. financial market and tip the economy into recession. Goldman Sachs economists have estimated that a breach of the debt ceiling would immediately halt about one-tenth of U.S. economic activity. According to center-left think tank Third Way, a breach that leads to default could cause the loss of three million jobs, add $130,000 to the cost of an average thirty-year mortgage, and raise interest rates enough to increase the national debt by $850 billion. In addition, higher interest rates could divert future taxpayer money away from much-needed federal investments in such areas as infrastructure, education, and health care.

Could breaching the U.S. debt ceiling bring down other markets?

Experts say a U.S. default could wreak havoc on global financial markets. The creditworthiness of U.S. treasury securities has long bolstered demand for U.S. dollars, contributing to their value and status as the world’s reserve currency. Any hit to confidence in the U.S. economy, whether from default or the uncertainty surrounding it, could cause investors to sell U.S. treasury bonds and thus weaken the dollar.

Over half of the world’s foreign currency reserves are held in U.S. dollars, so a sudden decrease in the currency’s value could ripple through the market for treasuries as the value of these reserves drops. As heavily indebted low-income countriesstruggle to make interest payments on their sovereign debts, a weaker dollar could make debts denominated in other currencies relatively more expensive and threaten to tip some emerging economies into debt crises.

Originally posted by: NerdyMukta

What is the debt ceiling?

Created by Congress in 1917, the debt limit, or ceiling, sets the maximum amount of outstanding federal debt the U.S. government can incur. In January 2023, the total national debt and the debt ceiling both stood at $31.4 trillion. The U.S. government has run a deficit averaging nearly $1 trillion every year since 2001, meaning it spends that much more money than it receives in taxes and other revenue. To make up the difference, it has to borrow to continue to finance payments that Congress has already authorized.

Since 1960, Congress has increased the ceiling seventy-eight times, most recently in 2021. Forty-nine of these increases were implemented under Republican presidents, and twenty-nine were under Democratic presidents.

What would be the consequences if the United States breaches the debt ceiling?

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the U.S. financial market and tip the economy into recession. Goldman Sachs economists have estimated that a breach of the debt ceiling would immediately halt about one-tenth of U.S. economic activity. According to center-left think tank Third Way, a breach that leads to default could cause the loss of three million jobs, add $130,000 to the cost of an average thirty-year mortgage, and raise interest rates enough to increase the national debt by $850 billion. In addition, higher interest rates could divert future taxpayer money away from much-needed federal investments in such areas as infrastructure, education, and health care.

Could breaching the U.S. debt ceiling bring down other markets?

Experts say a U.S. default could wreak havoc on global financial markets. The creditworthiness of U.S. treasury securities has long bolstered demand for U.S. dollars, contributing to their value and status as the world’s reserve currency. Any hit to confidence in the U.S. economy, whether from default or the uncertainty surrounding it, could cause investors to sell U.S. treasury bonds and thus weaken the dollar.

Over half of the world’s foreign currency reserves are held in U.S. dollars, so a sudden decrease in the currency’s value could ripple through the market for treasuries as the value of these reserves drops. As heavily indebted low-income countriesstruggle to make interest payments on their sovereign debts, a weaker dollar could make debts denominated in other currencies relatively more expensive and threaten to tip some emerging economies into debt crises.

Originally posted by: mishkil88

india being emerging country it can get affected.

Certainly 😒

https://www.cnbc.com/2023/05/10/microsoft-skips-salary-increases-for-full-time-employees-this-year.html

https://www.marketwatch.com/story/netflixs-password-sharing-crackdown-is-imminent-but-the-writers-strike-may-be-causing-a-delay-b5da09b5?link=sfmw_tw

https://www.marketwatch.com/story/house-could-vote-on-debt-ceiling-deal-as-soon-as-next-week-mccarthy-says-92e5c734?mod=BreakingNewsMain&link=sfmw_tw

https://www.wsj.com/articles/meta-fined-1-3-billion-over-data-transfers-to-u-s-b53dbb04

Isn't it strange that no of jobs are increasing as per following news while tech cos are sacking thousands of people. 😲

https://finance.yahoo.com/news/may-jobs-report-june-2-2023-123218296.html

Originally posted by: mishkil88

Isn't it strange that no of jobs are increasing as per following news while tech cos are sacking thousands of people. 😲

https://finance.yahoo.com/news/may-jobs-report-june-2-2023-123218296.html

Those jobs could be in other industries. Also, there's AI boom in the US right now. So maybe there's jobs in that area.