On February 26, the U.S. House of Representatives still failed to reach an agreement on spending on the imminent closure of some federal agencies on March 1. According to the deadline, lawmakers must pass 12 annual federal appropriations bills to fund the U.S. Departments of Agriculture, Energy, Transportation, Housing and Urban Development, among other departments, for fiscal year 2024 by March 1 or face a shutdown of these federal agencies.
A member of the U.S. Congress warned on February 26 that "unless the House of Representatives is serious, an extreme shutdown will jeopardize the U.S. economy, increase costs, reduce security, and cause immeasurable suffering to the American people." In this regard, analyst Katie. Edmondson said on Feb. 26 that lawmakers had no time to reach an agreement before the Feb. 29 midnight deadline.
With no sign of a breakthrough, the White House plans to meet in the Senate and House of Representatives on February 27, local time, to discuss the above-mentioned series of spending bills, and will also discuss the $95 billion foreign aid plan for conflict zones such as Ukraine and Israel passed by the Senate earlier this month, and the House of Representatives has refused to approve the fund expenditure.
Even the House of Representatives is currently in a two-week recess, even as the White House lashed out, "The House of Representatives adjournment is infuriating amid the imminent exhaustion of federal funds." But the House of Representatives will not reconvene until Feb. 28, as originally planned. That's just two days before March 1, when federal agencies shut down. And if the broad spending terms are not met between March 1 and March 7, all other agencies, including the U.S. Department of Defense, will expire and the federal government will be paralyzed by a massive shutdown on March 8.
Over the past six months, U.S. federal funds have relied on short-term, stopgap spending bills passed by the House and Senate to keep them flowing, almost at the last minute of the shutdown in each case. However, unlike previous ones, as the U.S. economy escalates in 2024, the issue of budget spending and debt is becoming one of the main disputes of the tear, and even becomes a bargaining chip for some institutions and individuals. The dispute is expected to reach a fever pitch by November, during which the shutdown crisis will be staged several times. Because the federal demand for Congress to pass various spending agreements unconditionally seems to the House of Representatives to be a complete dream.
As of February 26, Yellen has urged Congress to approve new spending several times since last year, and warned that if Congress is unable to reach a spending agreement, or the federal debt limit is in a deadlock, the U.S. Treasury is likely to be unable to continue to meet all its obligations to repay the debt, which will trigger an economic and financial disaster in the United States.
Some analysts believe that although the US Treasury and the Federal Reserve have continued to monetize US Treasury bonds and squandered the US dollar without restraint for many years, making the United States the world's largest debtor, at a critical moment, the US Treasury has dumped all the debts owed and the pot that may not be repaid to the US Congress. So what would it mean if the latest 12 spending deals in 2024 were not reached, leading to widespread federal paralysis? All things considered, at least the U.S. economy faces ten major risks.
1.The White House is closed, and tens of millions of dollars across the United States that need to be paid through the federal government may face a waste. 2.U.S. federal employees and active-duty and veterans' benefits will be impacted.
3.The influence of the United States in conflict zones such as Ukraine and the Middle East will be greatly reduced, and it will even further lose its naval supremacy in the Red Sea. As of February 26, U.S. Senators Susan Collins and Jack Reed have warned more than once that the U.S. Command is rapidly running out of funds, which is almost unacceptable to the United States, which claims to be the hegemon of the seas.
4.The agricultural sector in the United States will be in trouble. You know, in the four years from 2017 to 2020, the federal government made a total of $109 billion in direct payments to American farmers in various types of assistance, and in the three years from 2021 to 2023, it also paid $57 billion in subsidies to American farmers. And in 2024, American farmers will also need a lot of financial support to cope with financial pressures and other difficulties.
According to the latest USDA report released in February**, U.S. farmers are facing another year of financial distress as U.S. agricultural export dominance wanes. Net farm income in the U.S. is expected to be $39.8 billion, or 25., in 20245%。U.S. farmers will face the biggest drop in income since 2006 and years of financial pain. And with the loss of a large federal funding backing and even the U.S. Department of Agriculture on the verge of shutting down, some analysts expect more U.S. farms to go bankrupt in 2024, following the failures of at least 6,095 U.S. farms since 2010.
5.Among the world's three major rating agencies, following the downgrade of the U.S. sovereign credit rating by Standard & Poor's in 2011 and Fitch's downgrade of the U.S. in 2023, Moody's may downgrade the U.S. again, and the U.S. will lose its global AAA bond issuance rating. Because Moody's downgraded the outlook for the U.S. credit rating from stable to negative last year, and as of Feb. 26, it has repeatedly warned that further rifting and depleting funds will deprive the U.S. of a perfect rating.
6.Even more serious losses would be a significant blow to the status of the dollar and US Treasuries as the world's largest foreign exchange reserves. Because every shutdown of the U.S. federal government is a decline in the trust score of international parties, it is inevitable that the dollar and U.S. bonds will be widely questioned. As shown in the figure below, the latest data from the International Monetary Organization shows that the share of the dollar's global reserves has fallen from a historical peak of 85% in the 70s of the last century to a low of 59% today. This also seems to be a prelude to a large-scale federal shutdown and a new crisis for the dollar and U.S. bonds.
7.The U.S. will also face the possibility of a sudden and massive liquidation of U.S. Treasury bonds by several of its traditional allies, as has been the case in many months since 2020, especially in the first half of 2023, when multiple allies, including Japan, the United Kingdom, France, Germany, Italy, Canada, and even Israel, collectively sold off U.S. Treasuries in different months because of the U.S. debt ceiling impasse. And these traditional allies of the United States have set up a joint cryptocurrency group for de-dollarization in advance to carry out a series of economic and trade activities that bypass the dollar.
8.Saudi Arabia and many other oil countries, which have already begun to stop accepting orders from the United States, may move further away from the petrodollar at the point when the United States is shut down and paralyzed. In particular, when its own official departments are unable to operate normally, the US Congress has also repeatedly discussed a bill called NOPEC in an attempt to suspend the international oil pricing power of the Saudi-led OPEC (Organization of the Petroleum Exporting Countries).
Even in the context of trying to legalize the confiscation of assets such as the reserves of Saudi Arabia and other oil-producing countries, Saudi Arabia, as a party to the petrodollar agreement in the 70s of the last century, has repeatedly publicly declared that it will end the petrodollar agreement at some point in the future. And when the 2024 U.S. federal shutdown crisis accelerates, it happens to be a critical moment for Saudi Arabia and other oil countries to counter the hegemony of the dollar.
9.After falling into a shutdown crisis, the Federal Reserve 525%-5.With the benchmark interest rate of 50% still high, the risk of default on US Treasuries has increased. New York Fed President John CWilliams said on February 25 that the Federal Reserve would cut interest rates "later this year." The reason is that inflation indicators showed an upward trend in January, and the Fed's progress towards the 2% inflation target was "a bit bumpy". According to CME Group's Fed Watch Tool, the probability of a rate cut in March has fallen to 25%。
The probability of a rate cut in May is also only 21%. Expectations for a rate cut in June are neutral, with broad bets that rate cuts won't start until at least July. Even Summers, the former US **, believes that the probability of the Fed raising interest rates has reached 15%. All of this means that interest costs on new federal bonds will remain high in the coming months.
As of February 26, the interest cost of federal debt has exceeded the $1 trillion mark as the Fed continues to raise interest rates. Not only is the United States by far the world's largest debtor, but the interest cost of its national debt is also the highest in the world.
Yellen has repeatedly warned that "if the Fed's current level of interest rates continues, it will bankrupt the country." When a number of federal expenditures are at an impasse, it becomes more difficult for U.S. Treasury bonds to raise funds globally, which will make it more difficult for the U.S. to repay old debts and interest by borrowing new ones. "Yet the total federal debt of $34 trillion is a horribly runaway number. In response, Fed Chairman Jerome Powell responded positively earlier in February that US debt has grown faster than the economy, which is unsustainable.
10.In the context of the close proximity to the date of the US federal shutdown, some US congressmen are worried that China, as the world's largest importer and exporter, and the second largest holder of US bonds, once a large amount of liquidation or even emptying of US bonds, a series of ** partners may re-choose commodity currencies, which will become a deep hidden danger for the US dollar.
Based on this, the Financial Services Committee of the House of Representatives of the U.S. Congress issued a notice to the U.S. Treasury Department and Yellen a few weeks ago to prepare for the possible sale of more than 800 billion U.S. bonds for China and close to liquidation. If the funds are insufficient, you can use the 8133 in the US treasury5 tonnes of reserves, with priority payments to China and repayment of the principal and interest of the bonds due.
It is also at the critical moment of the US federal shutdown crisis that Yellen recently said that "the United States is conducting a new round of monitoring of the beneficial ownership database of 100,000 companies in the United States, which will support the US Treasury Department to seize illegal assets." "America is not a haven for dirty money."
Then, in an exclusive interview in Pittsburgh this week of February 24, Yellen mentioned that the U.S. Treasury Department and the IRS will focus on auditing the very wealthy in the United States. Over the next 10 years, the U.S. will earn an additional $850 billion by targeting multimillionaires and billionaires.
Some analysts believe that the so-called confiscation of illegal assets, as well as the focused audit of the assets of the wealthy American group, seem to be a potential signal that the US Treasury Department may confiscate some assets of some wealthy Americans or foreigners in order to maintain federal operations that will be shut down many times. However, this signal and related operations may backfire on the credit of U.S. Treasury bonds and reduce the credit score of the U.S. federal government, which is about to close its doors. Because among the main buyers of US Treasury bonds, American billionaires are one of the main groups.
For example, billionaire Warren Buffett mentioned in an open letter to Berkshire Hathaway shareholders on February 24 that "the company also has a position far greater than the conventional wisdom considers necessary in cash and U.S. Treasuries." Berkshire's huge position in U.S. Treasuries is finally starting to pay off and pay interest, far exceeding the income we had previously received from this investment......."
In other words, in the context of the U.S. federal shutdown and the Fed's high interest rates, Buffett's holdings of U.S. bonds, especially short-term Treasury assets, are being paid high interest. From this point of view, one of the drivers behind the US federal shutdown crisis also seems to be emerging, that is, the Fed's interest rates remain high, and the federal interest costs are too large, leading to the accelerated depletion of funds.
It is worth mentioning that the latest data from the U.S. Treasury Department shows that the data has been delayed by two months, and only the data released until December is currently released, China, as the second largest holder of U.S. bonds, increased its holdings of U.S. Treasury bonds by $34.3 billion in December last year, and increased its holdings by a total of $46.7 billion in November and December for two consecutive months. U.S. Treasury holdings returned to $800 billion, at $816.3 billion. As Warren Buffett hinted, the U.S. federal government will also cash out the principal and high interest of various maturing bonds to global buyers such as China at high interest costs.
At the same time, historical data from the U.S. Treasury show that China held about 1.5 percent of U.S. debt in 2013At a peak of $32 trillion, the current position of $816.3 billion is still at a historically low level. In the past 10 years, China has sold a total of about $503.7 billion in U.S. Treasury bonds, with a cumulative net selling ratio of 38%, and China has become the largest international seller of U.S. Treasury bonds in the long term. And it has ceased to be the largest overseas creditor of U.S. debt for several months.
This seems to be one of the reasons why some members of the U.S. Congress are worried that China may sell more than 800 billion U.S. bonds and call for priority repayment of China's debts when the U.S. federal shutdown is on the verge of a shutdown. Because once the world's largest importer and exporter of goods clears its U.S. debt, the United States is likely to have the next financial Pearl Harbor attack and suffer heavy losses. (ENDS).
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