storms in back to the issues the right time of the year for them. but his temperature is above 40. what about surgeries? what, whether we should be all hosted, then we should be in an old indian play and that has been the case in pakistan as well. although here is a wesley way of coming through, tempt has got a good big stream and jacob that have a hit 48 down to 43 on tuesday with showers building all over the place. the is the conflict into time continued. so correspondents are on the ground to report every angle. if the stories have been on good between the hours and the 6 needs are me available. beat ages is say that a 100 i'm soothing is refugees. why you have to be registered under what kind of an excess pay this this food does not get to where it is needed, so it may not get there. and all the challenge ahead is your stay without just the rest of the latest developments. tell us solve it steps even crisis and time

with less than 2 weeks to a deadline to agree on how much the government can. doris deep divisions remain. but what will happen if the 2 sides con, seal the deal, and what will be the global impact? this is inside story, the color there, and welcome to the program on this policy. okay. now, republicans and democrats are loggerheads over the us debt ceiling. the amount of money that the country can borrow to keep going. and so also the funding that presenter body needs to implement his policy program. something has republican opponents, so he gets a block ahead. his next year's presidential election bought failure to agree could have far reaching consequences, not just for the us, but also for economies around the world will be finding out why without guess

shortly, unexplored if an agreement is possible before the deadline. but fast. this report from alexander bias. i'm probably going to the latest battle ground between republicans and democrats in washington has been the debt ceiling. or in other words, how much the us government can borrow in 2011, both sides of played what's become a new ritual game of high stakes poker. waiting to see who blinks 1st before finally reaching agreement. but this time around, there's deepening, concerned about the divide between the 2 sides. the states could not be hire, a default would plunge our economy into recession. economists estimate that millions of americans would, could lose their jobs, hardworking families could lose their retirement savings. so our team will stay at it, we will stay focused and we hope that speaking mccarthy's team will negotiate in good faith as well as going well. president joe biden accused the republicans of folding

the economy hostage. the top republican negotiator says the white house is being unreasonable, the treasury has worn that without a deal, the us may be unable to pay its bills as soon as june 1st, you know, here's the note. so this can be discussion, did not help increase our confidence. no, i do appreciate you all coming in exchange for raising the nation's boiling limit. republicans want to see deep spending cuts, including some of biden's crucial domestic programs. these cover a wide range of plans from unemployment welfare to climate change for the white house says failure to strike a deal will hit government services affecting many people directly. but time is running out. if the us default on its debt, government payments to millions of people who rely on them could suddenly stop. as the white house estimates, half

a 1000000 people could lose their jobs in the short term. a longer default could cost more than $8000000.00 jobs and slash economic growth by 6 percent. but it's not just people in the us who should be worried. the shock waves from a potential us that default could be felt globally, given the importance of the world's biggest economy. alexandra buyers for inside story. the. well, let's bring in august now in washington dc. we have nor blessing. she's a senior fellow at the government affairs institute at georgetown university and last year she also testified to a congressional committee hearing on the debt ceiling issue and henderson, nevada william lee. he's chief economist at the milk and institution and also a former deputy division chief at the international monetary fund. and also in washington dc. simon were benefits the us economics at a, at the economist, a very well welcome to interview and thank you for joining us here today on inside story. i wanted to start with, where we're at. so to be very clear, this is

a political issue rather than an economic one, although as has huge economic repercussions, we were hearing of a couple of days ago that everyone was saying that the talks were on track, then they were stopped abruptly. then they started again after a few hours and throughout all of this, president biden has been while he's at the g 7, he's expected back on sunday assignment as a, so we'll just tactics as well. it's certainly tactical that at some level in the sense that the u. s. is at risk of running out of money to pay it steps by june. first, that's the quote unquote x state. after which the treasury will have used up all of its money and all of its various different accounting gimmicks. and so the expectation for quite some time had been that negotiations would continue in, fits and starts right up until the brink of that ex date of june 1st. so the surprising thing last week was that it seemed that negotiations were tracking in a positive direction. earlier than,

than people had expected. it's not all supply. all that surprising that there was a breakdown on friday and i would anticipate that they will continue to be quite a lot of dram uh right up until the last moment. so the republicans, i'll send somebody want to, i believe for you spending last year's levels for a decade. but those costs would be mostly on social programs and would obviously will say holes. biden's climb is agenda. i see the bill that they passed as diverse to say the least to see me get people on board. laura, can i ask you and your mind how much unity is there on that side of the aisle? that's a really good question because these negotiations are troubled. by a number of different factors, not just the fact that a to the 2 different parties are in control. the white house, the senate, and the house, which makes negotiation more difficult, but also their interest party factions. within the republican party, which is the main negotiating part partner without the house republican party is the main negotiating partner with the white house right now. and so those divisions

are really salient to how these negotiate and negotiations are going to play out how long they're gonna last and what a final deal might include. so you're asking absolutely the right questions. i think that we're definitely in a position where they're going to have to get democratic votes just because the margins are so tight in the house. but we've seen it, we're having a little bit of a dance on this issue. we're both sides of starting with the opening bids and now we're finally get getting at the very last minute getting down to brass tax in terms of what an actual deal would have. you mentioned the limit save, grow at which would bring spending down to fiscal year 2022 levels and then tap a growth in spending at one percent thereafter. are these are extremely, extremely large cuts that are not politically realistic. and so we're now moving on to a stage where we're seeing what level of levels of cuts might be acceptable to the

democratic negotiating partners. and some of those are probably easier to do uh, calling back cobit funds. for example, there's probably the sweetener that's gonna allow republicans to claim that they've reduced spending while having democrats be fine with that. but what's emerged is a real sticking point is the top line discretionary spending money for fiscal year 2024. busy or federal appropriation. so the budget that they're working on right now, i want to take a moment to hand because it feels like the house quite sure if i'm wrong is trying to stop the administration from spending on policies that the house itself would need to pause. they approve what the government spends right with him. is there a bit of a paradox here? well, no, actually like to the republican position has been very clear. they wanted to catch the degree to which the deficit has been rising over the last several years and faced several decades. because that is the main contributor to the why the debt is

become us to more than a 100 percent of g d p. so the republicans want to really address the main source of the rise of that, which is the entitlements. now discretionary spending is really already on its way down in the sense that defense spending and, and that a discretionary part of the budget people. it made a lot of efforts to try to contain those and the easy, it kills where it got to be the coven spending of. but the main target for, i think the republicans will be the entitlements. and that's where we have a lot of pushback from all functions of democratic party. and let's make it very clear that we have factions on both sides of the extreme, less on democrats and extreme right on the, on the republicans. and it's up to the white house and, and the congressional leaders to try to color these are extremely decides to try to come to some sort of agreement now. but right now, i think the, the main targets for the spending cuts all would be to try to address the

entitlements and, and the discretionary elements are just a fillers to try to make the package work. so it's still the up until what was it 2011. it felt like the debt ceiling was more of a formality right. i was looking at the numbers. it has been raised on 78 separate occasions since 196049 times under public and president 29 times under a democrat. but then it feels like it was westernized when president obama was then facing a republican house back in 2011. and obviously that time went right down to the y, and there was some very real consequences off to that. but they did get the concessions, well, some concessions that they were asking for. so nor let me ask you this. been that said precedent, and could we see that happen again? everett, you're really right to point to 2011. because while i'm, i want to point out that the debt ceiling is something that has been politicized by both political parties going all the way back to 1953 there. there isn't really

much of a good period of for the debt ceiling. it certainly hasn't acted as a meaningful tool of fiscal restraint, but it became not just partisan, but also perilous in 2011. and i think we have, there are some similarities to that time period of their view important differences as well. but you're right to be pointing out that there is real, that you have republican negotiators, that are, i say, no to tax increases. same now, isn't it that are looking to substantially limit of the book government spending over time. and that are willing to go up to treasury's ex stage to you, and you go to engage in negotiations. and yeah, this is a, this is a, a dangerous game to be playing. well, i'm sure it's not going on their test, but it's also have a lead up to an election. yeah, i'm wondering how that's playing into thing so. so, i mean, is there a sense that president biden is going to be the one who's going to come to blame

for whatever happens? well certainly that's part of the republican game plan is the belief that if there is going to be a problem, whether for markets or for the find me more generally that the blame will be on, on president biden's shoulders that will not play well in 2024, obviously i, if there's a big recession in the lead up to the election, i do think it's worth taking a step back for a 2nd. i beg to differ actually with a couple of points that, that william raised earlier in this discussion. so it's clear that america's fiscal path is on a non sustainable funding. if you look at the deficit and debt projections from a neutral party, like the congressional budget office, i it's, it is quite worrisome. it is something that has to be addressed. but that ceiling is not a very effective way the dressing. yes, if you look at the republican demands, they're also not very effective either. william had suggested that they were focusing on entitlement programs. in fact, that's not true. if you look at the limit growth save belt, it's almost entirely focused on discretionary spending or republicans themselves

have accepted that big changes to things like social security and medicare would be a 3rd rail in american politics. they don't want to propose something that would be so dramatically unpopular with the public writ large. so they're focusing in surely on discretionary spending. so in other words, i entitlements which day more or less the same. the huge weight of car box would effect things like education, transportation, salaries for federal, federal employees, potentially deficit payments. uh that payments as well. um, so that, that's, that's the balance of the republican focus. one of the frustrations on the democrat side is that if you are seriously concerned about america's fiscal past, you can't just look at spending. you also have to look at revenues. one of the big reasons why america is in the fiscal method a currently is, is that whenever there is republican administrations, they have pushed for quite aggressive tax cuts. most recently in 2017, under donald trump. these tax cuts have massively,

under the revenue generating side of, of the federal government here in america. and that's one of the big reasons for americans, fiscal problems. so, you know, really, if there is going to be a solution, you have to look at all 3 components. you have to look at spending on entitlement programs spending on discretionary programs. and critically, you have to look at americas taxation power. ready as, as far as the democrats are concerned right now, the republicans are only focused on one of those 3 elements. so there, there is a feeling like this is not a serious negotiation. this is a disingenuous negotiation. and to your point, it's highly politically motivated. knowing that the belief is that it will, we're very, very badly for the democrats and for bite and in 2024. and typically the 1st administration is both republican and democrat administrations have increased the debt and i believe of to the republicans got the administration back in 2011 to agree on caps for government spending. they were then abandoned by the republican controlled congress just

a few years later in the increased funding. but all of that aside, because that's going to be handled over in the coming days. i want to talk a little bit about consequences, because this would be the 1st time in history that the us defaults on the steps if it does indeed do that, and that's for our global audience, not the same as the u. s. government shut down, it has but far more serious, a deep consequences that will go far beyond the american shores. but that stopped now at home. william what happened back in 2011 that we were talking about, resulted in a downgrade for the us credit racing. and that means i was looking at the numbers, the cost of borrowing. when's helps with the us treasury by at least $1300000000.00 . if there's a deal that goes down to the why this time around, could that happen again? is very likely that we will see the kind of results again, because uh right now, as simon said, because the main focus of negotiation has been on discretionary elements that i mentioned to the need to focus on the intel them is really where the permanent

solutions are going to be s and p is going to come back to us and say the whatever solution they come up with, if it's purely discretionary spending is disingenuous and won't be effective and we will not put the debt passed on a sustainable course. uh so, so i think one of the things that we will watch out for would be any kind of repeated downgrade. we do, the double a rating that we have now may become single, a or our outlook will be downgraded. but also, i think one of the things that keep in mind is that this is an embarrassment that doesn't have to happen. most countries that are dead limits not as a nominal number, but as a share of gdp. the europeans, for example, in the u. uh set their, their dead limits as a chart g, p a at 60 percent of g p a. and so that wouldn't actually raise that. that's showing over time as inflation that pushes up uh of the various, various aggregates also out as far as international investors are concerned, this repeated completely dance has made the role of the us dollar into, to enter of a position where people question the value of hold of us treasury's as

a source of sovereign wealth and, and china japan have already reduced their whole these of your short stories by about 15 percent during the last year. and, and the likelihood is they will continue to reduce the whole thing so, so the consequences both domestically and internationally are really quite severe. and just focusing a little more on the domestic consequences. i do want to talk more about potential international for that in a minute. i was looking at projections from the wife's house in terms of scenario planning. they're saying pos a 1000000 jobs could be lost for a short lived default 0.6 percent decline. and in g d p longer 18300000 jobs lost 6 point one percent in g d p. now these a white house assessments, laura, do you agree with those? while i haven't done any sort of say i don't of alternate projections for you. i do think that it's important to note not just the multi faceted economic effects that such a default would cause, but we have having even getting close to

a default has very serious circle, a very serious effects for us. i just like what we saw in 2011. we had a number of different economic able effects and not just the downgrade of but you know, it cost to american tax payers g. o. did a record of, you know, showing those costs as well as just to know the document. margaret went down a lender's were, folks were not as excited to lend to the mortgage mortgage. consumer confidence went down in more uh, so even threatening either falls and getting close to one can have serious economic effects. certainly an actual default, completely unprecedented, of would be truly catastrophic because the amounts of this is about perceived risk . it feels like all that this political break mention is going to do is cost americans, right? presumably, make everything more expensive, not only for the treasury, but to every day americans. and that would then simon,

and i'm gonna throw this one at you. would that not just achieve the opposite of what the republicans say they want? yeah, certainly that's, that's the case that if, if the cost of or in for the federal government becomes more expensive as a result of this brings been shipped, that would obviously raise the cost of funding for the government that would make the debt burden that much more difficult to manage i, i think the key point though is that if america does actually get to the point that is defaulting on his debt, this would be something that was so unprecedented in the history of modern economics. america would be tearing into the void. this would be an economic, at a financial crisis. it could also very well be a constitutional crisis, because what happens is the day after default, there will be a fundamental quandary for the federal reserve, about how it should treat the american treasure. we use the u. s. government bonds that are in default the basic playbook,

which many believe that the federal reserve will follow it because they began to map it out in 2011, is that they would continue to accept the default in securities as collateral. effectively taking them off the market. there would potentially be a constitutional challenge saying that this flies in the face of what congress was doing when they were not raising the depth limit. so you would have incredible instability through financial markets, which would have clear knock on consequences for americans. short term economic performance, there be fundamental questions about the long term viability of american government paper. and the position of the dollar would be fresh. and as william has said, and then you'd have this, this political crisis which would be ramped up from 0 to $60.00. you know, overnight, so it's, it's really taking america to a point that it cannot afford to go and the rest of the world. i cannot afford to see america go in this direction. so if you look at all of the different probability models for how the debt crisis is going to be resolved, you know,

the over whelming assumption, 90 percent plus is that they will raise the debt ceiling before the next state before you have this kind of a problem, but the fact of the matter is, you know, these kinds of rips sheet games a brinkman ship, eventually there is a risk of an accident and there is a risk of america going over the edge. even if it's just a short term default, even if it's resolved, after a couple of days, the consequences would be absolutely fearsome. domestically and internationally. well, let's pair and left them all in to the best jelly. because as you were saying, lots and lots of countries as well as far in central banks do hold on to us treasury bonds. something like $500000000000.00 of us, that is traded every day. now if the us defaults on, it's that we'd obviously be an uncharted territory and obviously the us spelled out also the wells was of currency williams. what happens the foreign central banks

when something like this happens? well, the, the us treasury has a very special position inside. some of the audience members might think, well, why it's such a big deal if the us treasury defaults, after all, many governments around the world defaults are in their debt. many companies have declared chapter 11. so what makes the us treasury so special? and i think the response of that is that every security in the world is priced off of us treasures. the treasury represents the very bottom layer of low risk and, and, and, and, and, well understood pricing. so that when companies come to market, they price, they're dead as of a relative to where the treasury yields are. if questions coming to mind about the, the viability of us treasury as a secure asset, as the se is credit credit, where the assets, then every other company and every other country will be having difficulties pricing their securities and their assets. so that's why everyone talks about the

us treasure as having a very special place in the world markets. and any kind of question of default would bring this disastrous consequences because it would then freeze up the ability of companies around the world. and then countries around the world to issue bonds to finance their, their spending. and i think one of the consequences to be seen is that people are beginning to question more and more the viability of treasury's as a store of wells countries no longer are ours. thinking that holding their wealth and informed us treasury is, is a safe way to preserve the sovereign welfare. and as i said earlier, japan and china already we started reducing the whole these treasuries by about 1516 percent over the last year, 2022 from january to december. and that, i think is the, the beginning of the trend, which would bring into question the reserve cars to rolled, was the dollar and, and other of features of the financial markets that had been the foundation of pricing and, and, and practice. so around the world,

what could we potentially paradoxically see the us dollar and us treasury bonds strength. and because i wanted to, in the past when they've been considered very safe assets and investors like to invest in things when there's a huge amount of tunnels in the world markets. i know there's been some speculation around that and, but this also comes down to again perceived risk, right. so, so i'm, and do you think investors do believe that that the us can pay its bundled this bill or has that trust been a right. and i think that police still exists. i mean, you can look at the pricing of u. s. bonds both today, but also in the wake of 2011. you know, the decade after america's last serious debt ceiling crisis. in fact, the attraction of us markets of the dollar only increase because of course, the valuation of anything, you know, any currency, any financial asset is always partly relative. and the basic fact of the matter is that there is no other currency on offer in the global rita that offers the same

data, the same liquidity, the same breadth of assets, the same legally sound for the me that you will be able to get, you know, the full return that is owed to you, your assets will not be expropriated. so america offers things which a country like china, basically never can give it its career configuration. and i think you're right that there is the possibility that there might be some very perverse outcomes in the week of, of a default. if the fed does continue to accept defaulted securities as collateral. that would effectively keep liquidity training through the american financial system. you know, perversity that would potentially make default at that incredibly safe because of the fed is accepting it and, and the dollar is still seen as solid. despite the default on, on the treasury's. i think the real problem in the short term is not going to be the dollar standing globally, but is going to be that you have

a financial system that is predicated on treasury as being the ultimate risk free asset. you bought pricing models that are based on treasury is being paid off on time and in full. as soon as you have the kinds of maneuvers that are going to be required to keep the show on the road, it's going to throw a wrench in the american banking system in the global financial system. you know, it's really important ruble exactly what the consequences would be. you're asking laura before about whether or not the forecast of, you know, 8000000 out of work is a reasonable forecast. the basic answer is that nobody knows this would be the most incredibly dangerous game for congress to play with completely unpredictable outcomes. and so that's why we have to hope that that cooler heads do prevail. well, let me ask you then, laura, because we're talking about will this lack of predictability, this potential economic a best for the globe? is it just kevin mccarthy now standing between us and potential global economic collapse? i mean, presumably he realizes that and how do we store best from manhattan?

thing again, that's a really good question. there are, we absolutely have seen it since 2011, the willingness of american politicians to run with scissors on us. and, you know, you need to do something to take the scissors away, or at least blunt them. i would love to see the debt ceiling. just i love to do away with this thing entirely. it's entirely possible to do something where you can procedurally blunted, where you allow the treasury to, to raise it. and only i'm a super majority of congress to undo that choice to veto that choices that essentially a. but this is an incredibly, incredibly dangerous game that they're playing. i should also highlight that, you know, there are no negotiations. there isn't a part of the current and negotiations that want to take this past the presidential election. so currently they're, they're talking about maybe march, they're not talking about going past it. so, you know,

even if we manage to get past this one that they're looking to, to do around to the next year, which is extraordinarily irresponsible. and there are as part of this, these negotiations, they're, they're known as appear to be a serious consideration for how to, you know, make this a more safe tool and to make it less dangerous. um, uh, you know, you absolutely do have different political actors that are prolonging this, that are making it worse. and it's entirely fair to identify that. well, that's so much at stake and well, not just for the us, but also for the wild. we'll continue watching it very closely here and i'll just share that. so now we'll leave out discussing net. thank you to all of our guests william lea, nor blessing and simon er benefits. and thank you to for watching. remember, you can see the program again any time by visiting our website. that's also is there a dot com? and i've had the discussion to go to my facebook page. that's facebook dot com,

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