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US Republican debt ceiling plan would slow growth: Moody's

  • By Al Mayadeen English
  • Source: Agencies
  • 25 Apr 2023 09:35
  • 1 Shares
3 Min Read

When compared to a scenario in which a new ceiling was approved without conditions, unemployment would reach 4.6 percent, up from 3.5 percent in March 2023.

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  • Signage is seen outside the Moody's Corporation headquarters in Manhattan, New York, U.S., November 12, 2021. (REUTERS)
    Signage is seen outside the Moody's Corporation headquarters in Manhattan, New York, US, November 12, 2021. (Reuters)

The plan proposed by Republican House Speaker Kevin McCarthy to raise the US debt ceiling in exchange for cuts in government spending was criticized on Monday by Moody's Analytics, who claim the plan would slow growth and cut employment.

The agency argued that if the draft presented by McCarthy on April 17 were passed as is, it would lead to a drop of 0.6 percentage points in US potential growth in 2024 and the elimination of 780,000 jobs.

In comparison to a scenario in which a new ceiling was approved without conditions, unemployment would reach 4.6 percent in March 2024, up from 3.5 percent in March 2023.

President Joe Biden has advocated for such a "clean" lifting of the US borrowing limit, claiming that the deficit spending has already been approved by Congress and is thus not subject to debate.

While the White House has warned that the Republican plan is akin to "economic hostage-taking" and McCarthy has blamed Biden for "bumbling" toward a default, a deadline is rapidly approaching; the US government risks defaulting on payment obligations by July or even sooner, with serious consequences for the US and global economies.

McCarthy said Sunday that the House will vote on his plan this week.

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Moody's Analytics estimated that the plan as presented is "especially inopportune as it would meaningfully increase the likelihood of such a downturn," despite the fact that the risk of recession remains in the United States.

The agency added that "the significant government spending cuts... are substantial headwinds to near-term economic growth."

The United States hit its $31.4 trillion borrowing limit in January, forcing the Treasury to take "extraordinary measures" that allow it to continue financing the government's activities.

However, the US government runs the possibility of going into payment default as early as July if the debt ceiling is not raised or suspended by Congress before the present options run out.

Why are Republicans proposing an increase in the debt ceiling?

In an effort to curb Democrats' allegedly "reckless" spending, House Republicans have vowed to increase the debt ceiling only if spending caps are put in place.

McCarthy is calling for a floor vote before the end of the month, posting on Twitter Tuesday that it was "time to stop the madness." "Democrats' reckless spending caused inflation, a banking crisis, and so many other problems," McCarthy tweeted.

However, Biden claimed that the Republican leader was proposing "huge cuts to important programs" that "millions of Americans count on," and that his plan would return the nation to "the same old trickle-down economic theories of the past."

Democrats are adamantly opposed to the Republican plan, contending that it amounts to extortion to tie raising the debt ceiling to budget cuts. McCarthy "threatened to become the first speaker to default on our national debt," Biden said.

  • United States
  • Republican Party
  • Moody's
  • Democratic Party
  • Unemployment
  • Kevin McCarthy

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