The Next Big Crisis — Fires; What About the Debt Ceiling?
Author: Greg Valliere
July 30, 2021
THERE’S BEEN SO MUCH NEWS — focusing on the highly contagious Delta variant — that another huge story has been pushed off the front pages: fires in the West, which are likely to get much worse in coming weeks, even with more firefighters.
NEARLY HALF OF CALIFORNIA is in an “exceptional drought,” with no significant rainfall likely for another month or longer; dry thunderstorms are possible, but they usually spark more fires. Wildfires in California have scorched close to four times the number of acres destroyed at this time last year.
PRESIDENT BIDEN WILL MEET TODAY with governors from seven states who will plead for more federal assistance. The meeting will focus on hiring more firefighters and increasing their pay; in June, Biden signed an executive order that raised the minimum wage for federal firefighters to $15 an hour.
EVEN WITH MORE BOOTS ON THE GROUND as the fire season peaks in September, the risk is that fires will become more intense in Southern California; recent fires have been largely in the sparsely populated northeast of the state. New fires in more populous areas will result in rolling blackouts in the state, home of the world’s fifth largest economy.
FIRES EVERYWHERE: The U.S. is not alone — unprecedented fires have erupted in Sardinia, Greece, Siberia and in Canada’s British Columbia. Meanwhile, extreme heat in Greenland has resulted in a loss of 18.4 billion tons of land mass since Sunday, which is certain to elevate water levels globally. especially in the U.S. — from New York City subways to Florida’s fragile coastline.
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WHAT ABOUT THE DEBT CEILING? This is one of the most maddening issues in Washington, an irritant for the markets that always gets resolved at the very last minute. It expires at midnight on July 31, with no sign of Congressional action any time soon.
REPUBLICANS SUDDENLY HAVE FOUND RELIGION: They’re ranting about runaway spending, even though they have supported it, and have concluded that their best strategy is to block passage of a debt ceiling extension.
TREASURY WILL TAKE FIRST STEPS TODAY: Secretary Janet Yellen is expected to announce the beginnings of “extraordinary measures,” suspending sales of securities that help states and municipalities invest bond proceeds.
YELLEN WILL HAVE TO DIP INTO HER TOOLKIT frequently, because it’s unlikely that Congress will extend the debt ceiling until October. Treasury can suspend new investments in several federal funds including for civil service retirement and disability, postal service retiree health benefits, exchange stabilization and the Government Securities Investment Fund.
THE BIGGEST ISSUE IS HOW THE DEBT CEILING WILL BE RAISED: It might be attached to a budget reconciliation measure this fall that Democrats will try to ram through Congress, largely to pass a second infrastructure bill (but not all Democrats are likely to accept a $3.5 trillion package). Or it could be raised in a stand-alone bill, but stand-alone bills usually attract tons of amendments.
WE DO NOT ANTICIPATE A FEDERAL GOVERNMENT DEFAULT on its loans. The debt ceiling always gets raised, and it will be raised again late this fall. But it could be an irritant for the markets, as Yellen juggles Treasury funds to keep the government afloat.
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