A bipartisan agreement has been reached between President Joe Biden and Republican House Speaker Kevin McCarthy, with the goal of extending the debt limit.
Key points of the Fiscal Responsibility Act include:
- Debt limit extension: The deal suspends the debt ceiling, currently at $31.4 trillion, until January 1, 2025.
- Spending caps: The agreement establishes spending limits for the next two years: $886 billion on military spending and $704 billion on nonmilitary discretionary spending in fiscal year 2024.
- Policy measures: The bill proposes to rescind around $28 billion in unspent Covid relief funds, cut $1.4 billion in IRS funding, and redirect approximately $20 billion from the Inflation Reduction Act to non-defense funds.
The bill, set for a vote in the Republican-led House, must pass the Democratic-controlled Senate before the June 5 deadline to avoid default.
If the bill passes, the US could avoid a potential economic catastrophe or delay it. This resolution would extend the debt limit to 2025, effectively postponing the debt ceiling issue until after the 2024 election.
However, all of this hinges on the bill’s successful passage…
Europe’s Largest Economy Falls into Recession
Germany has entered a recession.
The country’s output was down 0.3% in the first quarter of 2023, following a 0.5% contraction at the end of 2022, marking two consecutive quarters of declining output.
The surge in energy prices, made worse by Russia’s invasion of Ukraine and the subsequent throttling of gas supplies to European countries, heavily burdened the German economy over the past year.
However, inflationary pressures are easing, and natural gas prices have significantly fallen, which has some German leaders suggesting the recession could be short-lived.
“There is a lot of investment in Germany in terms of battery and ship factories, which is increasing significantly, and we can therefore be confident,” Chancellor Olaf Scholz said at a press conference in Berlin.
Meanwhile, German household consumption has continued to decrease in 2023, down 1.2% in the first quarter. And the latest International Monetary Fund forecast predicts the German economy will shrink by 0.1% in 2023.
So far, Germany’s recession has been mild. However, if geopolitical tensions continue to rise and Russia shuts off its supply of natural gas to Europe, this minor recession could get ugly fast.
Meanwhile, back home…
Will America Follow in Germany’s Footsteps?
Despite the most aggressive Federal Reserve tightening in decades, a small group of economists believes the U.S. may be able to avoid a recession.
Out of 27 forecasters surveyed by Bloomberg in May, only five believed the U.S. would not slide into a recession within the next year.
Many believed if interest rates were increased, a recession would be a forgone conclusion. However, factors such as the robust labor market, elevated wage growth, and inflation beginning to ease continue to support consumer spending.
In the month of April,
- The hiring rate rose higher.
- The unemployment rate went down to 3.4%.
- Retail sales posted gains.
- Automobile sales were up.
- And factory production increased.
This trend has revived hopes for those predicting a “soft landing,” where price pressures dissipate without triggering massive job losses or economic downturn.
While most economic forecasters still say a recession is highly likely, this new data suggests it may just arrive later than we thought…
Texas Lawmakers Consider Creating Gold-Based Digital Currency
Texas could be the first state to issue its own digital currency…
If Senate Bill 2334 passes, the Texas comptroller would create this digital currency and would have the authority to mint pure gold or silver coins based on weight.
The digital currency and coins would be considered legal tender and could be used by anyone in the world via debit card system, as long as it’s legal in their location.
The state comptroller or a trustee would be responsible for buying and holding enough gold or silver to back the digital currency for each account holder.
Amidst the well-founded concerns about central bank digital currencies (CBDCs), it’s important to remember that digital money in itself is not inherently problematic. Digital currencies are merely a tool that can be used for good or evil, depending on who is using it.
If a CBDC is controlled by the folks in Washington, or the bankers on Wall Street, then it could easily be used for surveillance and control.
But if the state of Texas – or anyone else for that matter – can create one that’s backed by real assets like gold or silver, and managed in a transparent way, this could be the start of a better monetary future.
Only time will tell…
