The Game of Debt-Limit Chicken Heats Up

The Game of Debt-Limit Chicken Heats Up

Biden in Valhalla, New York
Kyle Mazza/NurPhoto
By Yuval Rosenberg and Michael Rainey
Wednesday, May 10, 2023

Good evening.

Republican Rep. George Santos of New York has been charged by federal prosecutors with 13 financial crimes, including wire fraud, money laundering, making false statements to the House of Representatives and theft of public funds. Prosecutors allege that Santos misled donors with the intent of making money for himself. They also say Santos improperly applied for and received nearly $25,000 in unemployment benefits for a period when he was employed with an annual salary of about $120,000. Santos co-sponsored a bill introduced last month that seeks to incentivize states to recover fraudulently paid Covid-19 benefits and prosecute the fraudsters.

Santos pleaded not guilty to all charges and boldly pledged to prove his innocence. He was released on a $500,000 bond.

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The Game of Debt-Limit Chicken Heats Up

A day after his meeting with congressional leaders yielded little progress toward raising the debt limit, President Joe Biden on Wednesday hit the road to ramp up pressure on House Speaker Kevin McCarthy.

At a campaign-style event in Valhalla, New York, Biden criticized McCarthy and the House-passed plan to raise the debt limit, cut spending and roll back key elements of the president’s agenda.

“America is the strongest economy in the world, but we should be cutting spending and lowering the deficit without a needless crisis,” Biden said.

Biden again said the House bill would require a 22% cut to non-defense discretionary spending, including huge cuts to a host of popular programs.

“That’s not my opinion. It’s just basic math,” Biden said.

The president said the bill would put 21 million people at risk of losing Medicaid, cut veterans’ benefits and threaten the economy.

The House bill would return federal spending to fiscal year 2022 levels and cap increases at 1% a year for a decade — but it does not specify how the savings would be achieved or how much specific programs would be cut.

The White House has used that vagueness to argue that aid to veterans would face drastic cuts — a charge that Republicans deny. Biden brought up the cuts to veterans’ care during his meeting with congressional leaders Tuesday, and McCarthy later told reporters that he told the president that was a “lie.” Biden insisted he is right. “If they wanted to protect something, they would have written it down [in their bill] and say we’re protecting it, you can’t cut this program,” Biden said Wednesday.

McCarthy told reporters he will bring a bill to the House floor next week that would fund Veterans Affairs and address that particular argument with the White House.

“If you take out the $138 billion VA discretionary budget, that means that they’d have to find all the cuts from about $700 billion in domestic discretionary spending,” The Washington Post’s Leigh Ann Caldwell and Theodoric Meyer point out — as the White House is sure to do, as well.

More details on Tuesday’s meeting: The White House meeting reportedly was testy at times. Biden told reporters Tuesday evening that “three of the four participants [were] very measured and low key,” but that “occasionally there would be a little bit of an assertion that maybe was a little over the top from the speaker.”

McCarthy reportedly was also the only one of the four congressional leaders who would not commit to taking default off the table. “Even [Senate Republican] Leader McConnell said, unequivocally, no matter what, the U.S. will not default. But McCarthy, Speaker McCarthy alone, refused to take the threat of a catastrophic default off the table,” Senate Majority Leader Chuck Schumer said Wednesday. “I asked him pointedly, I asked him pointedly if he would join us, but during yesterday’s meeting he was the sole holdout.”

Plenty of politics at play: The president’s speech came in a congressional district that he won in 2020 but that is now represented by a Republican, Rep. Mike Lawler. “The venue reflected the president’s heightened efforts to pressure vulnerable Republicans on the debt limit, though Biden at one point veered from that script, praising Lawler as reasonable and moderate,” The Washington Post notes.

What’s next: White House and congressional aides reportedly met Wednesday and will continue their talks. Biden, McCarthy and the three other top congressional leaders are scheduled to meet again on Friday. There’s still no clear path to avoiding a crisis.

Inflation Eases for 10th Month in a Row, but Prices Still Rising Quickly

The consumer price index dipped to an annual rate of 4.9% in April, the U.S. Bureau of Labor Statistics announced Wednesday. The results were better than expected and mark the 10th month in a row that the 12-month inflation rate has fallen after reaching a peak reading of 9.1% in June 2022. It was also the smallest annual inflation rate recorded in two years.

On a monthly basis, though, the inflation rate jumped higher, rising from 0.1% in March to 0.4% in April, driven by surging prices for used cars (up 4.4%) and gasoline (up 3%). Grocery prices, on the other hand, dropped by 0.2% during the month, though they are still higher by 7.1% relative to a year ago.

The core CPI rate, which leaves out volatile food and fuel prices, rose 0.4% on a monthly basis and 5.5% annually.

Mixed messages: The uneven data in the report are a reminder that while inflation is likely past its peak, the path of disinflation will be rocky as price increases continue to run well above the Federal Reserve’s target rate of 2%. “It’s a step in the right direction,” Kevin Cummins, chief US economist at NatWest Markets, told the Financial Times, adding the caveat that “core inflation and core services are still rising at a pretty solid pace.”

Blerina Uruci, chief U.S. economist for fixed income at T. Rowe Price, said the report offers little hope to those hoping the Fed will soon cut interest rates as the economy slows. “This is a story of still-sticky core inflation at an elevated level,” Uruci said. “This report puts the Fed on track to keep rates high this year.”

A political weapon: The White House celebrated the report while using it as an opportunity to attack Republicans for refusing to raise the debt ceiling without concessions from Democrats.

“The annual inflation rate has now come down 10 months in a row at a time when our economy and job market are strong, with the unemployment rate at its lowest level in more than 50 years,” White House Press Secretary Karine Jean-Pierre said in a statement. “With all this progress, the single biggest threat to our economy would be if House Republicans fail to prevent default. That would cost millions of Americans their jobs, increase costs, increase the deficit, and crater retirement accounts. As the President said to Congressional leaders yesterday, we must take default off the table – and then have a separate conversation about the budget.”

Republicans put a different spin on the news, insisting that it shows that inflation is still too high, which they say is driven by public spending. “Today’s report is more evidence that inflation is not going away on its own and that President Biden needs to do more of what he did this week, which is sit down with Republicans to figure out a way to rein in reckless spending,” Rep. Jason Smith, the Missouri Republican who chairs the Ways and Means Committee, said in a statement.

The bottom line: Inflation is declining but continues to run at a level significantly higher than the Fed is aiming for. The latest report lends support to the view that while the Fed may not raise rates again at its next meeting in June, it’s unlikely to lower them any time soon either.


Fiscal Year 2023 Deficit Totals $925 Billion So Far: Treasury

In its latest monthly statement released Wednesday, the U.S. Treasury said the federal budget deficit totaled $925 billion for the first seven months of the 2023 fiscal year.

In April, the Treasury saw a surplus of $176 billion, driven by individual income tax payments of $381 billion. The April surplus was larger last year, coming in at $308 billion, driven by tax payments related to asset gains recorded in 2021.

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