Shattering The Debt Ceiling & The Egg Conundrum
January 18, 2023
Too Big To Fail: Government Edition
The U.S. government will hit its debt limit tomorrow. Once the borrowing cap is reached, the Treasury Department will have to pay the bills using “extraordinary measures” until Washington can negotiate a raise in its spending limit. While brinkmanship over the debt ceiling has become commonplace, Wall Street analysts are worried about the possibility of political games causing real harm to the economy this time.
This week, Bank of America analysts said that a government default later this year is “likely.” According to Goldman Sachs, the government is at a “greater risk” of defaulting than at any time since 2011. One cause of these alarm bells is the new Congress. House Republicans gained a small majority in the midterms, and a group of GOP lawmakers has announced they will only agree to raise the debt limit in exchange for deep spending cuts.
A government default could crash markets worldwide through mass selling, causing huge damage to the world economy, but even the threat of default could cause economic pain. In 2011, before the debt limit was raised, government bond yields spiked, raising the cost of government borrowing, and stock prices plummeted. In today’s more complex market, the effects of a default panic could have even worse consequences.
The government has a few tools in case of a default. Many of them would cause lasting damage to our economic system, but at least one is entertaining. According to a former Treasury official, a plan known as “minting the coin” has been “seriously” considered during past debt crises. Like releasing the kraken, it’s a crazy move – using a legal loophole, the Treasury could mint a trillion-dollar platinum coin and place it in the Federal Reserve, allowing the government to pay off its debts without raising the spending limit. However, the move would be only “slightly better than default,” according to that official.
Want To Learn More?
- House Republicans gear up for a debt ceiling fight with the White House and Senate Democrats (NBC News)
- Treasury warned it would take ‘extraordinary measures’ because of the debt limit. Here’s what that means (CNN)
- The U.S. could hit its debt ceiling within days. Here’s what you need to know. (NPR)
This past week, we shared a story about the calls for George Santos to resign. Here are the results of the survey (it was even more of a landslide than expected).
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China’s Childbirth Challenge
- For the first time in decades, China’s population has begun to shrink. On Tuesday, China announced that 9.56 million people were born in the country last year, while 10.41 million people died. It has long seen this moment coming, and has tried to raise birth rates by weakening its one-child policy and implementing monetary incentives for parents, with little success.
- A declining population introduces new challenges for China. A shrinking workforce will stifle economic growth and decrease the country’s tax base while pressuring its already-strained pension system. Getting back to replacement-level fertility rates could also prove a challenge – “I don’t think there is a single country that has gone as low as China in terms of fertility rate and then bounced back to the replacement rate,” said one population expert.
- It’s been a rough few weeks for China. The country recently lifted its zero-Covid policy, slamming its economy and causing widespread unrest. The country’s reported death toll from Covid jumped from single-digit daily deaths to 60,000 deaths between December 8 and January 12, though experts believe those numbers are lowballed. On Tuesday, China also posted its economic data for 2022, revealing a growth rate of just 3% last year, the lowest rate it’s seen in almost 40 years.
Want To Learn More?
- Here’s why China’s population dropped for the first time in decades (NPR)
- How China’s population decline could alter the global economy (PBS)
- China’s first population fall since 1961 creates ‘bleaker’ outlook for country (Guardian)
Hush Money In Hanoi
- Vietnamese President Nguyen Xuan Phuc has stepped down after the ruling Communist Party accused him of allowing “violations and wrongdoing” by government officials under his control. Phuc is the highest-ranking official in Vietnam to be targeted by the party’s anti-graft campaign, though the role of president is largely ceremonial.
- According to the government, Phuc was responsible for offenses committed by two deputy prime ministers and three ministers, among others. “Fully being aware of his responsibilities before the party and people, he submitted an application to resign from his assigned positions, quit his job, and retire,” read a party statement about Phuc’s resignation. Earlier this month, the government dismissed two deputy prime ministers as part of its corruption crackdown, and 539 party members were prosecuted or “disciplined” for corruption last year.
- The jury is still out on the country’s anti-corruption campaign. Some experts believe that a limited leadership change could allow new, more effective leaders to gain office without negatively affecting Vietnam’s economy, though others worry that political instability could scare away investors. Recently, the country has become increasingly reliant on foreign investors to fuel its economic growth.
Want To Learn More?
- How Vietnam’s Anti-Corruption Fight Keeps Expanding (WaPo, $)
- Vietnam politics: Power shift as President Nguyen Xuan Phuc quits (BBC)
Additional World News
- Chinese woman says she is detained in secret location after Beijing protest (Guardian)
- Greta Thunberg arrested at German mine protest, will be freed later, police say (Reuters)
- Nepal co-pilot’s husband also died in plane crash 16 years ago (BBC)
- Germany’s no-nonsense new defence minister faces early test over Ukraine (Guardian)
- Why Ukraine believes tanks can turn the tide of war (Politico)
- Andrey Medvedev: How Russian mercenary made an icy escape to Norway (BBC)
- Suspected jihadists kidnap 50 women in Burkina Faso (Guardian)
“Concentrate all your thoughts upon the work at hand. The sun’s rays do not burn until brought to a focus.” – Alexander Graham Bell
Bates And The Backroom Bargains
- White House spokesman Andrew Bates said in a statement on Tuesday that the administration is calling upon new Speaker of the House Kevin McCarthy to reveal precisely what was agreed to across the 14 votes to secure his seat. “An unprecedented tax hike on the middle class and a national abortion ban are just a glimpse of the secret, backroom deals Speaker McCarthy made with extreme MAGA members to end this month’s chaotic elections and claim the gavel,” Bates’ statement read.
- McCarthy insists no formal agreements were made over those few days of uncertainty, but those Never Kevins tell a different story, saying they were given promises in exchange for switching their votes. The White House is pointing to the current legislative priorities, like cutting down the IRS and tax changes, as evidence that Republicans are now under the thumb of their farthest-right colleagues.
- “The few agreements we know about would fundamentally reshape our economy in a devastating way for working families and criminalize women for making their own health care decisions,” Bates said, adding that “They’re also planning to plunge the economy into chaos and take millions of American jobs and 401k plans hostage unless they can cut Medicare.”
Ronnie D. vs. Donnie T.
- Governor Ron DeSantis running for president in 2024 has become less of a rumor and more of a foregone conclusion in recent months. In fact, a poll from the conservative Club for Growth found that DeSantis has a better chance of beating President Biden than Trump does as of earlier this month. So, how is former President Trump feeling about this potential contender?
- “So, now I hear he might want to run against me. So, we’ll handle that the way I handle things,” Trump said on “The Water Pooler” podcast hosted by David Brody of the Christian Broadcasting Network. The “way” of Trump has led us down some risky paths in the past, but it’s unclear exactly what he means here.
- Trump is the only Republican that’s announced he’s running in 2024, while DeSantis has stuck to neither confirming nor denying his plans. Despite that, many in the GOP have held off on throwing their weight behind the former president.
Additional USA News
- Indiana man arrested after toddler shown on live TV with handgun (CNN)
- Martin Luther King’s son defends controversial new headless statue (BBC)
- Indiana Rep. Jim Banks announces bid for Braun’s Senate seat (NBC)
- California rainstorm death toll reaches 20, Biden plans visit (Reuters)
- Boy, 11, fatally shot by girl who was arguing with another child, Dallas police say (NBC)
- Outrage after Kentucky student who created ‘kill list’ allowed back to school (Guardian)
- Top US general visits training site for Ukrainian soldiers (ABC)
Cracking Under The Pressure
- No, Chicken Little, the sky isn’t falling – egg prices are just sky-high. Since late December, the cost of a dozen “Midwestern large” eggs has skyrocketed to $5.46, up massively from its price tag of $0.89 at the start of the pandemic, and almost double the previous peak it hit last summer, in the low $3 range. Aside from a spike in prices, eggs are also becoming hard to find in some parts of the country, especially California.
- The main reason that eggs are pricey and rare right now is an outbreak of avian influenza. Almost 58 million chickens have died of the virus in the past year, with most of those deaths being egg-laying hens, or “layers.” The U.S. population of layers has dropped significantly, from 328 million in December 2021 to 308 million in December 2022. To balance supply and demand, one global egg trade strategist says that the number of layers should equal the number of humans in the U.S. – thanks to the avian flu, we’re now short of that 1:1 ratio.
- Another driver of egg prices is inflation. Inflation affects every component of the egg supply chain, from chicken feed to transportation. Increased costs of gas or cardboard containers can drive up prices, even if taking care of a chicken costs the same. Luckily, experts say that prices for a dozen Humpty-Dumpties should take a great fall soon. Since the last avian flu outbreak in 2015, egg producers have gotten better at repopulating their farms, and wholesale prices have already begun dropping – a good indicator that grocery store prices will also eventually fall.
Additional Reads
- 2nd Colorado library closes due to meth contamination (ABC)
- 40-foot endangered sperm whale washes ashore in Oregon (CBS)
- How close to midnight is humanity? 2023 Doomsday Clock announcement could warn of nuclear disaster (USA Today)
- A yellow kitchen in Ukraine is torn open, laying bare the sudden impact of Russia’s war on innocent lives (CBS)
- In parts of Ancient Greece, first-cousin marriage was not only allowed but encouraged, DNA shows (CNN)
- Household wealth optimism collapses, global survey shows (Reuters)
- Locally caught fish are full of dangerous chemicals called PFAS, study finds (CNN)