The debt ceiling charade is all over.
This was the 79th time it’s been raised since 1960 and the US still hasn’t defaulted. Remember that next time.
The US has averted a major economic crisis by raising its debt ceiling as part of a new two-year budget agreement that echoes the structure of the past three such deals. The agreement keeps non-defense spending roughly flat for the current fiscal year and 2024 and removes budget caps after 2025.
The spending levels reached reflect those the Biden administration had negotiated at the end of the last calendar year, thereby averting a potentially catastrophic 22% cut in non-defense discretionary priorities and a decade-long set of caps. The budget deal includes full funding for veterans’ medical care and elevates funding for the toxic exposure fund over 2024 levels.
Despite Republican requests, the agreement does not incorporate any alterations to Medicaid. It does, however, modify SNAP (food stamp) aid time limits, gradually implementing and then sunseting them for recipients up to age 54. Additionally, reforms are introduced to lower the number of vulnerable people of all ages subject to time limits.
The Inflation Reduction Act funding remains intact for clean energy funds for low-income Americans and pollution cleanup. As the US Supreme Court considers a significant student debt case, the resumption of student loan payments has been put on hold.
The agreement has a few stipulations for lower-income Americans, including the introduction of extra work requirements. There’s uncertainty around funding for the IRS, but House Minority Leader Kevin McCarthy announced there are no new taxes or programs in the deal. He hailed it as achieving ‘historic reductions in spending’.
They’re calling it an ‘agreement in principle’ so there’s always a chance some renegades could derail it but here are the main points:
- Keeps non-defense spending ‘roughly flat for current fiscal year and 2024
- Structure of two-year US budget deal is consistent with agreements reached during last three debt limit battles
- There are no budget caps after 2025
- Agreed-upon spending levels reflect what Biden admin had negotiated at the end of the last calendar year
- Averts a 22% of non-defese discretionary priorities and 10 years of caps
- Fully funds veterans medical care and increases funding for toxic exposure fund over 2024 levels
- Includes no changes to Medicaid that had been sought by Republicans
- Phases in and then sunsets SNAP (food stamp) aid time limits to people up to age 54
- Also includes reforms reducing number of vulnerable people of all ages subject to time limits
- Inflation Reduction Act funding preserved for clean energy funds for lower income Americans and pollution cleanup
- Student loan payments will not resume while US Supreme Court considers student debt case
- It includes some extra work requirements for the poor
- It’s not clear if funding for the IRS has been cut
- McCarthy says no new taxes or programs in the deal and that it has ‘historic reductions is spending’
I can’t see anything here that will move markets. Bitcoin rose about $300 after the deal so I take that as a sign of ‘risk on’ for markets but a deal should have been largely priced in before the weekend.