Of course, investors should be given relief. Alarm bells had been ringing on Wall Street for weeks, and JPMorgan Chase was already working hard to prepare for a possible default by the world’s largest economy.
But the relief is only temporary. Once the Senate’s stopgap measure is approved by the House of Representatives, the Treasury will be able to pay its bills by December 3. Incidentally, there is also a deadline for deferring the government shutdown.
That’s right: The United States is now less than two months away from a potential simultaneous government shutdown (when current legislative approvals for government spending are set to expire) and default (when the debt limit is set to help the Treasury pay its bills). prevents).
It is to reiterate that almost every economist and market expert agrees that a US default will tank stocks and cause great damage to the economy. We are talking about an immediate recession.
According to Moody’s Analytics, about 6 million jobs will be lost, the unemployment rate will drop to about 9% and stock prices will drop by a third, eliminating about $15 trillion in household assets.
and for what? The increase in the loan limit has nothing to do with new expenditure or borrowing. Instead, it allows the government to carry out activities previously authorized by Congress.
Treasury Secretary Janet Yellen, who used to lead the Federal Reserve, has some ideas about essentially holding the US economy hostage every few years to lawmakers in order to score some cheap political points.
“This has led to a series of politically dangerous conflicts that have made Americans and global markets question whether the US is serious about paying its bills,” Yellen told Granthshala’s Erin Burnett on Thursday.
“It’s an impossible situation. Congress needs to debate these issues when they’re deciding on spending and taxation, not every several years, take a hard stop and say, ‘Okay, now we Will not let the Treasury secretary pay the country’s bills,’” Yellen said.
A point observers sometimes make that the United States has never missed. But it turns out that this may not be strictly true.
The first snafu occurred after the War of 1812, when reduced military spending and revenues left the Treasury unable to make certain interest payments on federal debt. The second came during the Great Depression, when President Franklin Roosevelt suspended the gold standard and the Treasury owners suffered losses.
More recently, the Treasury failed to make timely payments to some small investors in the spring of 1979, when automated data processing was in a relatively primitive stage, according to the paper.
So how do we know that a US default now would be catastrophic? The short answer is that we don’t – but it’s not really worth finding out.
The Congressional Research Service concluded, “Other countries that defaulted in the 1930s or into the 19th century apparently suffered no permanent damage to their borrowing capacity.” “Nevertheless, the dominant role of US Treasury securities in global and domestic financial systems implies that systematic delays in Treasury payments now may have dire consequences.”
Why jobs recovery will remain rough
Friday’s jobs report will shed some light on whether August’s disappointing numbers were just a blip — or the start of an unwanted trend.
“The pandemic has always been in the driver’s seat of this recovery,” ADP chief economist Nella Richardson told reporters on Wednesday. “The name of the job recovery game is still ‘unequal’.”
Last year, the labor market was fragile, and during the colder months, the battered leisure and hospitality industry lost jobs – something that could happen again this year. Meanwhile, hundreds of thousands of women left the labor force in September 2020 as children returned to virtual classrooms and parents had to step in as teaching assistants.
Whether any of these events return remains to be seen.
The numbers: Economists surveyed by Refinitiv estimate half a million jobs were added to the economy last month. The unemployment rate is expected to tick up to 5.1%, just below the August rate of 5.2%.
That would be more than double the disappointing 235,000 jobs added in August, which performed nearly half a million less than expectations.
Tesla is heading to the Lone Star State
“I’m excited to announce that we are moving our headquarters to Austin, Texas,” CEO Elon Musk said during a Tesla shareholders meeting on Thursday.
The electric car company is currently located in Palo Alto, California, near its original headquarters in San Carlos, and its first factory is in Fremont.
But the company has repeatedly disputed with California officials. And Musk said Thursday that “there’s a limit to how large you can scale in the Gulf region.”
He cited housing affordability and long travel as other negative factors. The Austin factory, on the other hand, is five minutes from the airport and 15 minutes from downtown, he said.
Musk himself said in December that he moved to Texas, and that one of his other companies, SpaceX, is developing a giant rocket system known as “Starship” in South Texas.
Despite the headquarters move, Musk said Tesla plans to continue expanding “significantly” in California.
“That’s not the case, like Tesla leaving California,” he said. The company intended to increase production from its Fremont factory by 50%.
The US jobs report for September will be published at 8:30 a.m. ET.
Also today: OECD may announce a global deal on corporate tax
Coming next week: Investors will keep an eye on the latest inflation numbers from the United States.
Credit : www.cnn.com