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SPI Management Newsletter 20.01.2023

U.S. approaches debt ceiling and starts extraordinary measures to prevent failure

As the United States approached its borrowing limit on Thursday, the Treasury Department started taking extra steps to maintain paying the government's obligations. This marked the beginning of a potentially protracted and challenging congressional fight over extending the debt ceiling.

The Treasury Department started implementing so-called extraordinary measures as a result of the federal government being confined by the roughly $31.4 trillion debt ceiling. The Treasury will be able to continue making payments to bondholders, Social Security recipients, and other parties until at least early June thanks to these accounting measures, which include halting investments for specific government accounts, the agency announced last week.

That gives the Biden administration and members of Congress around five months to adopt legislation increasing or suspending the debt ceiling. Treasury Secretary Janet Yellen stated that there was "substantial ambiguity" as to how long extraordinary measures could remain in a letter to congressional leaders on Thursday.

In light of recent deals to increase the debt ceiling that did not involve spending cutbacks, President Biden and Democrats in charge of the Senate said they won't submit to Republican pressure to eliminate federal programs.

Investors have so far ignored the deadlock. Wall Street expects that Washington will once more resolve the issue since Congress has historically waited until the very last minute to extend the debt ceiling following a dispute, analysts said.

Central bankers at Davos warn of impending economic hardship

The head of the Swiss National Bank, Thomas Jordan, warned that it could be challenging to bring inflation down from "far too high" levels without experiencing some considerable economic hardship.

Jordan said: “Don’t underestimate the second round effects. Firms do not hesitate any more to raise prices and that is a signal that it will not be easy to bring inflation back to 2 per cent”.

He expressed the expectation that doing so would have "minimal economic impacts," but he could not make any guarantees.

Former US Treasury official Larry Summers noted that raising inflation targets from their current levels of 2%, as some economists, including former IMF chief economist Olivier Blanchard, have suggested, would be a "grave error" for governments or central banks.

Dubai's real estate boom is fueled in part by foreign investors

Experts predict that the record-breaking number of transactions in the UAE's real estate market, particularly in Dubai, over the course of 2022 will continue into 2023.

In Dubai in 2022, there were around 97,000 real estate transactions worth €67.38 billion. High-net-worth individuals have continued to invest in Dubai over the past 18 months despite the global economic outlook, which has bolstered the luxury sector and increased sales volume by 76% from 2021.

According to real estate analysts, a mature market has increased demand for homes inside the nation, including apartments, townhomes, and villa communities, with prices likely to surpass pre-pandemic levels in 2023.

Adapted from WSJ, CNBC, FT, Bloomberg,Euronews

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