Another US shutdown is looming
If Congress does not reach an agreement, the US government will run out of money tomorrow.
Commerzbank Economic Research
12/20/2024
Donald Trump blocks compromise...
A bipartisan compromise had actually already been found to extend the US federal government's funding, which was due to expire on Saturday, until March 2025. However, president elect Donald Trump, rejected the compromise, thereby expressing the widespread dissatisfaction of numerous Republican representatives with the agreement. In the end, the package also included some costly additional measures, for example in the area of health care, and comprised 1547 pages, which the members of Congress were supposed to approve at short notice. The rebellion against the compromise was further fueled by Elon Musk.
The Republican speaker of the House of Representatives, Johnson, then made a second attempt at an agreement. However, this slimmed-down version also included Trump's demand to suspend the debt ceiling for two years. But in doing so, he angered a number of fiscally conservative Republicans. Accordingly, this Plan B also failed, with 38 Republicans voting against it together with the Democrats. Currently, the Republicans have only a narrow majority of 219:211 in the House of Representatives; this will shrink further to 219:215 in January after the newly elected Congress convenes.
...because he wants the debt ceiling out of the way
In June 2023, the legislature suspended the debt limit for the federal government. It will come into force again on January 1, 2025, with the debt level reached at that time being the new ceiling. An increase in public debt will then only be possible if the debt limit is suspended again or increased by a certain amount. Currently, only about 70% of government spending is covered by tax revenues, with the rest being financed by bond issuance. Donald Trump's plans, in particular the promised tax cuts and the extension of the 2016 income tax cut, would further increase the deficit. The debt ceiling is therefore threatening to hinder his plans, which explains his call for a longer-term suspension of it.
Even if the debt ceiling is not suspended or raised by January 1, this would not immediately affect the US federal government, however. The deficits could be covered for a few more months by drawing on account balances and some creative accounting instead of incurring additional debt.
For full text see attached PDF-Version.
