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Debt Ceiling Crisis Heating Up Already; The Joe Biden Document Puzzle

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Debt Ceiling Crisis Heating Up Already; The Joe Biden Document Puzzle

Author: Greg Valliere

January 17, 2023

NO ONE SEEMS TO HAVE A COHERENT PLAN to deal with a the looming budget crisis, but one thing seems sure: politicians want to stir the pot with threats of deep spending cuts and a potential government default.

THE IMMEDIATE THREAT: The nation’s $31.4 trillion debt ceiling will be hit within the next few days, but Treasury officials will shift funds from one account to another, which should keep the government open until early summer. Then the crisis will really heat up.

AS WASHINGTON ANALYSTS GAME OUT a late-summer crisis, the first question is what do House Republicans want. The simple answer is that they want a budget surplus within a decade, but getting there will require massive spending cuts. Social Security won’t be on the table, but Medicare payments may be. What about the Trump tax cuts that expire in two years? What about defense spending?

AS ON MANY ISSUES, the Republicans are badly divided, especially on defense outlays; a Pentagon spending freeze would prompt some GOP House members to vote against a budget bill. Our best guess is that the rate of increase for defense – and everything else, for that matter – will slow but not actually decrease.

HOUSE LEADERS, FEARFUL THAT A DOZEN RADICALS could prompt a politically disastrous government shutdown and debt default, are floating a plan that would prioritize spending if there’s a default. Debt interest payments would be made, Social Security checks would be mailed, veterans would get their benefits, but discretionary spending would take a massive hit.

DEMOCRATS WE TALKED WITH THIS WEEKEND speculated about an alliance this summer between virtually all Democrats and just enough House Republicans to pass a debt ceiling extension. Another option could be a “discharge petition,” which would require only a simple House majority to bring a debt ceiling hike to the floor.

THE NEXT CHAPTER IN THIS SAGA will be a document from Republicans specifying what spending they propose to cut. That will get enormous pushback from Democrats and quite a few Republicans.

AS THIS FIGHT SIMMERS, it’s inevitable that officials at the Federal Reserve will be paying attention. The prospect of a government shutdown, then a default crisis, could make the central bankers a little less likely to hike rates much more — as the jittery markets brace for Washington’s self-inflicted budget crisis.

* * * * *

AS WE WROTE ON FRIDAY, Democrats in this town are stunned by the inept White House handling of secret documents, some of which were found in Joe Biden’s garage. This crisis probably won’t cost Biden the Democrats’ nomination, but there’s one very big lingering puzzle — some of the documents were discovered last Nov. 2, which wasn’t revealed until nearly a week later, after the mid-term elections.

WHO MADE THE DECISION TO HIDE THE DOCUMENTS FOR A WEEK? As Biden stonewalls, refusing to talk with reporters, a suspicion persists that he played a role in keeping the documents from the public just before the elections.


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

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©2023 AGF Management Limited. All rights reserved.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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