Investing 23-01-2023 23:02 14 Views

S&P 500 breaks above 4,000 as Democrats propose eliminating debt ceiling

Only days after the U.S. government reached its debt limit, House Democrats are pushing for Congress to eliminate the debt ceiling altogether.

Republicans are demanding spending cuts

The United States had its debt exceed $31 trillion last week. Now, Republicans are open to raising the borrowing limit but only as long as the federal government commits to meaningfully cut spending.

In contrast, Democrats argue a spending cut could result in the government failing to meet its current obligations. In a statement, Rep. Bill Foster said today:

Govt has an obligation to pay its bills. Threatening to default is same as ordering an expensive meal, eating it, and skipping out without paying. We can have a conversation about spending, but credit of U.S. must never be compromised.

S&P 500 leaves the sub 4,000 territory

Federal spending is on track to exceed $6.0 trillion this year versus $4.4 trillion before the pandemic. But Democrats see it not as synonymous to new spending but only as means to fund the government’s current obligations. Rep. Foster also said:

Weaponising the debt ceiling and using it as a pawn in partisan budget negotiations is dangerous and repeatedly brings our nation to the brink of default, which could be disastrous to the U.S. economy.

Equity investors seem to celebrate what House Democrats are proposing, considering the benchmark S&P 500 index surpassed the key 4,000 level on Monday.

Historically, a default tends to be a significant threat to bonds, equities, and the U.S. dollar.

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