What did the fight over the US debt ceiling cost?

This is an audio transcript of the FT News Briefing podcast episode: ‘What did the fight over the US debt ceiling cost?’

Marc Filippino
Good morning from the Financial Times. That is Friday, June 2nd. This is your FT News Briefing.

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Binance is getting battered by US regulators. And hey, looks like the US isn’t going to default on its debt after all. But, boy, it was a doozy getting to this point. Plus, Ukraine is increasing its attacks on Russia ahead of its spring counteroffensive. I’m Marc Filippino, and here’s the news you need to start your day.

The world’s largest cryptocurrency exchange has lost a quarter of its market share in the past three months. The decline comes at a time when Binance is running into tougher commercial competition, and it’s facing a regulatory crackdown in the US. New York state watchdogs banned Binance from issuing its own stablecoin, and US federal regulators are suing the crypto exchange.

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The US government looks like it’s on its way to passing a bill that raises the debt ceiling. If the deal is signed into law, it means the country will not default on its debt, something that would have been economically catastrophic. To explain more about where this battle over the debt ceiling has left US politics, I’m joined by the FT’s Washington bureau chief, James Politi. Hi, James.

James Politi
Hey, thanks for having me.

Marc Filippino
So, James, this deal was really brokered by a Democratic president Joe Biden and Republican House Speaker Kevin McCarthy. There were some concerns that McCarthy wouldn’t be able to wrangle enough support from his own party members to get this through the House. How significant is it that he was able to pull this off?

James Politi
Well, it’s definitely really significant for global investors and the world economy because it was one of the biggest sources of uncertainty out there was whether McCarthy had the influence, the mantle, the power to actually be able to get a controversial, ultimately, bill or his party through the House of Representatives to prevent a default on US debt. And, you know, after negotiating with President Biden, they struck a deal, and he was able to get it through the House. And so I think there’s a lot of relief that actually he was, perhaps, more powerful and politically able and more in control of his rocky Republican caucus than, than we thought at the, at the beginning of the year.

Marc Filippino
So what does this fight over the debt ceiling tell us about the polarisation in American politics?

James Politi
Well, it tells us that the level of political tension is high enough to have brought us to the brink of default for the first time in 12 years, which is really a risk that seems kind of irresponsible. But ultimately the centre held in American politics in this instance, that both Democrats and Republicans, even, you know, under the heavy influence of Donald Trump, decided that it was better to strike a deal than to see the fallout from a potential default. And I think in some ways that’s encouraging in the current environment. Whether that holds after this, I think remains to be seen.

Marc Filippino
So, James, it looks like this is going to get signed into law. Now that this drama is almost in the rear-view mirror, what did it do to the US’s economic and financial reputation, anything?

James Politi
In some ways it’s been less damaging than it was in 2011 when there was actually a market crash at the time of the, you know, final vote on the Hill. And there was the downgrade by Standard and Poor’s of the US’s triple A credit rating, which we didn’t have this time around. So I think they managed to limit the damage. But it certainly has been, unseemly, that once again, we are back on the brink of default here in the US. And you know, after all, US Treasuries are the bedrock of the strength of the dollar and the dollar’s status as a reserve currency. And it could really be harmful over, over a long period of time if these crises keep getting detracted. And I think there’s going to be a push, you know, especially among Democrats, to try to see if there’s a way to neutralise the debt ceiling forever and make sure that it’s no longer a factor and can’t be used by Republicans to try to extract concessions in the future.

Marc Filippino
James Politi is the FT’s Washington bureau chief. Thanks, James.

James Politi
Thanks so much.

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Marc Filippino
Inflation in the eurozone fell to its lowest level since Russia invaded Ukraine just over a year ago. Annual consumer prices in the euro currency bloc rose 6.1 per cent in May year on year. That’s down from 7 per cent in April. Economists say the drop in core inflation was largely due to Germany launching a subsidised ticket for public transportation, which slowed down rising prices for transport services.

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First there was the mysterious drone attack on the Kremlin last month. Then earlier this week, drones hit the Russian capital again. There was also a drone attack on a Russian spy ship in the Black Sea. FT Ukraine correspondent Chris Miller says these are what are being called shaping operations.

Christopher Miller
Shaping operations are essentially the preparations that take place before any major forward thrust or ground counteroffensive, right? So these are strikes on command and control centres, logistical hubs, maybe Russian air defence systems, things that would ultimately be used by Russia in its defences or even its own offences and make it difficult for Russia to better defend itself when Ukraine’s counteroffensive gets under way in earnest.

Marc Filippino
And, he says, the long awaited spring counteroffensive is coming.

Christopher Miller
There have been numerous Ukrainian strikes deep within Russian controlled territory in eastern Ukraine and southern Ukraine. The Ukrainians are clearly trying to knock out logistical centres, command and control centres generally to disrupt Russia’s defensive plans. We’ve also seen, you know, Russia ramping up its own air strikes. We’ve seen, you know, some movement around the front line in the east of Ukraine, around the city of Bakhmut, which Russia has managed to seize full control over but has lost some ground around the northern and southern flanks of the city. So it does look like Kyiv is trying to probe Russia’s defensive lines here and there to sort of gauge where its weaknesses are as it gears up for the true counteroffensive, which is a more major ground advance.

Marc Filippino
So what would Ukrainians regard as a successful counteroffensive?

Christopher Miller
There was a large section of territory in eastern Ukraine, in Donetsk and Luhansk regions that had been occupied for eight years prior to this full scale invasion. I think a lot of Ukrainian officials would consider a successful counteroperation being one that sees Ukrainian forces get closer to liberating those territories and even encroaching on them or the border of Crimea in the south. That would mean a significant advance, territorially speaking. And it would certainly put pressure on the Kremlin and deeply embarrass Russia’s military.

Marc Filippino
Chris Miller is a Ukraine correspondent for the FT. He was speaking with the FT’s chief foreign affairs commentator, Gideon Rachman, for the Rachman Review podcast, which comes out every Thursday. We’ll have a link to the episode in the show notes.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Sam Giovinco, Breen Turner, Katie McMurran, David da Silva, Michael Lello and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.