Pantheon: Impact of debt deal on the economy likely modest

assuming the deal gets passed makes its way through the Senate what do you think of the outcome for the U.S and its finances well the outcome on on the economy is going to be quite modest I mean first of all uh the the spending cuts that are carved in stone that you can be pretty sure will actually happen only last through 2025. all the all the budget totals that you've been seeing are between a billion and a trillion and 1.5 trillion for the 10-year total you know that can be undone or changed or remodeled by a future Congress so I think that what to focus on that's important really now is what happens in the next couple of years so There's a constraint on spending in in 2024 fiscal year beginning in October this year and again in 2025 but the impact on on GDP growth will probably only be a couple of tenths uh in both years so in not enormous really I mean it's not trivial I mean you know it's a meaningful amount of money but it's not really going to fundamentally change the trajectory of the economy and as I said this is all up for grabs again in January 2025 when the debt ceiling will will just be set at whatever level it's got to and then there'll be another fight over whether to raise it again so it's it's effect uh it's not a massive deal from a macro perspective it clears a big cloud that was hanging over markets for sure but um you know the fundamental problem is that the debt ceiling is a crazy idea in the first place and we haven't got rid of it well you know that was actually going to be my next question Ian I mean we know that we've solved the issue again short term kick the cans out of the road we're probably going to be having another discussion in in December of next year and uh towards the end of 2024 is it time for the US to think about just abolishing this that ceiling concept is there any way that that can actually happen hell yeah it can happen that there was a bill a joint House and Senate bill in the lame duck session after the midterms last year to abolish the debt ceiling altogether but it was shot down um by the by the administration and the Democrat leadership in the Senate because I think they took the view that Kevin McCarthy the house Republican leader would find it very difficult to pass any sort of debt ceiling Bill and they would just enjoy watching him twisting the wind failing to do anything but of course McCarthy did pass a bill which then became the basis for negotiations and the Democrats strategy of just saying clean debt ceiling Rays or nothing was immediately out the window so I think they read McCarthy wrong um and by doing that they blew an opportunity during that lame duck session to get rid of the debt ceiling altogether I think it was a huge mistake because they should have learned by now that Republicans will always use the debt ceiling to try and extract um concessions from Democrats that they wouldn't be able to get under normal circumstances and this has happened over and over again now and yet they didn't take the opportunity uh to uh to get rid of it thinking that there would be some short-term political gain from it so I hope they will sit back and reflect that that was a misjudgment and should the Democrats be holding a majority uh in the House and Senate again after future elections I'd like to think that this time around and actually get rid of it because it is crazy it is just a voting effectively to pay bills that have already been incurred by Congress very few of the countries have a debt ceiling and it's just become a political football that I think in truth um you know it doesn't really serve any great purpose and um and getting rid of it will probably generate some some nasty headlines for democrats for a couple of days in the right-wing media but then everyone will forget about it

Channel: CNBC International TV

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Id: 9m5MBUkAjoM

Length: 3min 23sec (203 seconds)

Published: Thu Jun 01 2023