World Insights: Doubts surface over whether debt ceiling bill can mitigate U.S. economic risks

BEIJING,June8(Xinhua)--DespiteU.S.PresidentJoeBidentoutingthebipartisanagreementonthedebtceilingas"abigwin"forthecountry,globalconcernsabouttherisksofAmerica"seconomyhaveonlyintensified.

TherisksoftheU.S.economyhavenotonlyfailedtodissipatebuthaveevenincreasedinsomeareas.

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MARKETLIQUIDITYSQUEEZE

Marketanalystsanticipatethatthecash-strappedU.S.TreasuryDepartmentmaystartmassiveborrowing,unleashinga"tsunami"ofnewbonds,whichcouldleadtoadraininmarketliquidity.

DatafromtheU.S.TreasuryDepartmentshowedthatasofJune1,theTreasury"scashbalancehasfallenbelow23billionU.S.dollars.Afterthedebt-capresolution,theTreasuryDepartmentisexpectedtoreplenishitscashbalanceto550billiondollarsbytheendofthismonth.MarketparticipantsanticipatetheTreasury"sdebtissuanceinthecomingmonthscouldexceed1trilliondollars.

"Thisisaverybigliquiditydrain.Wehaverarelyseensomethinglikethat.It"sonlyinseverecrashesliketheLehmancrisiswhereyouseesomethinglikethatcontraction,"JPMorganChase&Co.strategistNikolaosPanigirtzoglouwasquotedbyBloombergassaying.BankofAmericaCorp.analystshaveestimatedthataquarter-pointinterestratehikewouldhavethesameeconomicimpact.

Adelugeislikelytosuckasignificantamountofliquidityoutoffinancialmarkets,Bloombergreported,addingthatitcouldaddpressuretoafinancialsystemstillshowingsignsofstrainafterseveralbankscollapsedwiththeFederalReserveraisinginterestratesandshrinkingitsbalancesheet.

ThegoodnewsofatentativedealfortheU.S.debtceilingimpassemayquicklyturnouttobebadnewsforfinancialmarkets,Reutershasreported,explainingthatonceadealisreached,theU.S.Treasuryisexpectedtoquicklyrefillitsemptycofferswithbondissuance,suckinghundredsofbillionsofdollarsofcashfromthemarket.

"Ourconcernisthatifliquiditystartsleavingthesystem,forwhateverreason,thiscreatesanenvironmentwheremarketsarecrashprone,"AlexLennard,investmentdirectoratglobalassetmanagerRuffer,wasquotedassayingbyReuters."That"swherethedebtceilingmatters."

LIMITEDFEDERALSPENDING

Thedebtceilingbillrestrictsfederalspendingforthefiscalyears2024and2025.MarketparticipantsbelievethattheU.S.economyhasbeenweigheddownbyvariousunfavorablefactorsinrecentquarters,withgrowthbarelysustainedbyfederalexpenditures,sothebill"srestrictionsonspendingmaydampenthissupportivefactor.

"Fiscalmultiplierstendtobehigherinarecession,soifweweretoenteradownturn,thenthereducedfiscalspendingcouldhavealargerimpactonGDPandemployment,"MichaelFeroli,chiefU.S.economistatJPMorganChase&Co.,wasquotedbyBloombergassaying.

Inadditiontoincreasingfinancialrisksandweakeninggrowthmomentumintheshortterm,thedebtceilingbill,inthelongrun,failstosubstantivelyaddressthelong-standinginstitutionalflawsintheU.S.economyregardingdebtissues.

Thetwopartiesagreedtorestrictspendingforthefiscalyears2024and2025inexchangeforsuspendingthedebtceilinguntilJanuary2025,whichcoincideswiththeassumptionofofficebythenextpresidentandtheinductionofsomemembersofCongress,effectivelypassingthe"oldaccount"to"newofficials."

Furthermore,twokeyfiscalissuesrelatedtotheU.S.debt,welfarespendingandtaxrevenue,werenotsignificantlyaddressedinthebill.Democratsareconcernedthatpushingfortaxincreaseswillhurttheirelectionprospects,whileRepublicansfearforcingDemocratstocutwelfarespendingwillresultinanangrybacklash.

Republicanleadershavecalledthedeal,knownastheFiscalResponsibilityAct,ahistoricvictoryforbudgetaryprudence.Inreality,itdoesnothingtotackletheprimarysourcesofAmerica"sfiscalirresponsibility,TheEconomistsaid.

TheUnitedStatesisn"ttheonlyadvancedcountrywhosepoliticshavebecomepolarized.Still,accordingtoTheWallStreetJournal,itistheonlyonewherethedivisionofbudgetaryauthoritybetweentheexecutiveandlegislativebranches,anannualbudgetcycleandadebtceilingoffersomanyopportunitiesforpolarizedpoliticstojeopardizewhatshouldbetheroutinematteroffundingthegovernment.

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