Negotiations continued this weekend between the United States government and the speaker of the country’s House of Representatives, Kevin McCarthy, to extend the debt ceiling.
Everything indicates that there will be good news for the markets and the economy, not only for the US, but for the whole world, including Mexico.
This week that begins will be decisive. In fact, according to the media that reported on the weekend a supposed principle of agreement between the parties, they indicated that on Wednesday the 31st it will be voted on by Congress, which would put an end to any possibility of an additional crisis in this economy. A highly optimistic start to the week is even expected in the global financial markets.
Mexico is tied to the future of the US economy, like it or not. It must be recognized that this principle of agreement clarifies the economic panorama in our country a little more, at least in the short term.
These would be the preliminary agreements reached this weekend, according to some highly credible media such as Bloomberg; and from our point of view, the benefits for Mexico.
Increase in debt until 2025
According to Republican Kevin McCarthy, Speaker of the US House of Representatives, the deal in principle contains historic spending cuts, consequential reforms that will lift people out of poverty and into the job market. It also corrects the excesses of the Government. No new taxes or new government programs.
the agreement allows to increase the limit of more debt until January 2025but there will be limits on spending for two years.
Programs critical to workers and to growing the economy are protected.
They will keep non-defense spending broadly stable next year and increase it by just 1% in 2025.
Limits are placed on what is known as discretionary spending; that is, the money that Congress appropriates each year to fund federal agencies and programs.
Such restrictions do not apply to mandatory programs such as Medicare (health) and social security.
There is a point of agreement to debate if defense spending rises 3.3%, as requested by Biden in his budget proposal.
A large number of federal programs will face budget cuts next year as they there will be no increase to account for inflation.
are introduced work requirements (such as working or being willing to work) to receive certain anti-poverty subsidiesespecially aid for food.
These supports, instead of being required up to 49 years of age, will be extended to 54 for people without children.
There will also be exceptions to be able to provide support to veterans and vulnerable groups, such as the homeless.
The cut of 10,000 million dollars is expected of a budget increase of 80,000 million for the tax agency (an equivalent of the SAT in Mexico).
A comprehensive plan is approved to speed up the approval of energy projects with far-reaching changes to the 53-year-old National Environmental Policy Law.
If the plan is approved next Wednesday, it would be the 79th time that the United States has approved the increase in its sovereign debt limit since 1960.
The benefits for Mexico
For Mexico, this agreement is good news, one that was already needed.
The risk of a provoked recession, which is not the same as an inertial recession, dissipates.
The dollar will strengthen in the short term, surely the peso will continue to appreciate and contribute to lowering inflation.
It is foreseeable that the US economy will gradually regain tractionwith the positive effects for its Mexican counterpart due to the increase in exports from this side of the Rio Grande.
Remittances to Mexico will maintain their dynamism, or possibly increase it.
As the negotiating parties anticipated from a moment, the possibility of a default was not contemplatedIt didn’t suit anyone inside or outside the United States.
Today we can talk about very good news for the global economy; Unfortunately, it continues to “kick the boat”, now for January 2025, when the world will surely be filled with uncertainty again.
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