The Munk Debates Podcast - Friday Focus: Debt Ceiling – Netflix Gets CanCon

Episode Date: April 28, 2023

Friday Focus provides listeners with a focused, half-hour masterclass on the big issues, events and trends driving the news and current events. The show features Janice Gross Stein, the founding director of the Munk School of Global Affairs and bestselling author, in conversation with Rudyard Griffiths, Chair and moderator of the Munk Debates.  The following is a sample of the Munk Debates’ weekly current affairs podcast, Friday Focus. On this week’s edition of the Friday Focus podcast, Janice and Rudyard start the show with a discussion of the U.S. debt ceiling debate and passage, this week, of a bill by the Republican-controlled Congress to cut government spending in turn for raising America’s borrowing limit. How likely is a compromise with the Biden Administration? What could happen to the U.S. economy and global markets if a deal isn’t brokered? The second half of the program dissects Canada’s new law to mandate Canadian content on online streaming platforms like Netflix. Who benefits from the law? What will be the impact on consumers of online content and small, independent digital creators? Is this a smart move for Canada? To access full-length editions of the Friday Focus podcast, consider becoming a donor to the Munk Debates for as little as $25 annually, or $.50 per episode. Canadian donors receive a charitable tax receipt. This podcast is a project of the Munk Debates, a Canadian charitable organization dedicated to fostering civil and substantive public dialogue. More information at www.munkdebates.com.Become a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

The following is a complimentary excerpt of this week's edition of the Friday Focus podcast by The Monk Debates. To access full-length editions of each and every episode, along with all kinds of great additional benefits and perks, become a donor to the Monk debates. You can do that for as little as $25 a year, and you'll receive each and every year 50 Friday Focus episodes at full length. It's all available right now on our website. in just a few simple clicks. Triple W. The Monk Debates.com. Look for the Friday Focus option in our navigation bar, the top right of the website. Make your donation, and we will send you each and every Friday a link to listen to the

full-length edition of this program. Thanks in advance for your generous contribution. Hello, Monk members. Rudyard Griffiths here, the executive director of the Monk Debates. Welcome to this, the regular Friday Focus podcast. as I am each Friday joined by Janice Gross Stein, the founding director of the Monk School of Global Affairs, internationally renowned scholar and author.

Janice, how do we find you today, the 28th of April? Waiting for spring to come for two days before it turns into summer, desperate for spring to come. That's right. We go from cold to hot and back again, so much for the shoulders.

seasons here in southern Ontario. But hey, we still have a really cold, rainy weekend coming up. So we can enjoy that. Talking about cold showers, we've got to go south of the border to kick off this week's show. We've seen a series of developments in Congress, which seem to suggest a increasing risk of a U.S. debt default. The Republican Party, the GOP, the GOP, passing successfully a legislation that, in a sense, demands of the Biden administration to make some major concessions on parts of the budget, which were enacted prior to this Congress being elected last fall. So basically, what's happened is the Republicans come into power. They take the House. And their argument is, you know, we're now the duly elected chamber.

with the legislative authority to ratify your spending, which is 100% true in terms of the U.S. Constitution, and you, Mr. President, are going to have to sign a different bill coming up from the Congress that scales back a lot of your legislative agenda, especially around the greening of the U.S. economy. But, Janice, I think we both agree the bigger issue here is the fact that the U.S. government requires authorization by Congress to raise the debt ceiling. And this means, in effect, allowing the Treasury to issue more debt on international bond markets to fund the budget.

And they're, in a sense, going to say, no, we're not lifting the debt limit until you accept our new spending bill. How serious do you think this is getting? And what are the risks right now? It's almost impossible to comprehend. an American default on its sovereign national debt. Roger, let's walk down that road together because this is the highest stakes shootout, but you can imagine.

Kevin McCarthy, the new speaker, got that bill through the house. It was as much about him and his leadership as it was about the content of the bill. He scraped it through barely. But his goal was to get a piece of legislation passed because people had said he just cannot put together a majority in the House. And he did it by a squeak. You said it was going to cut Biden's spending. I would say it was going to slash and burn Biden's legislative agenda. These are really deep cuts in spending.

They're so deep, Redyard, that McCarthy knows there's no way the president can accept this bill. He is going to veto this legislation. It's going to come right back to Congress. And they are staring in an abyss here because they, Janet Yellen, has done everything she can, as Secretary of Treasury, to keep this thing going to fund. But they're going to hit a wall in July. probably. And it's unimaginable that the United States would default. Talk about shaking confidence in the United States in global money markets. I can't, it's almost inconceivable this will happen.

But boy, they are backed into a real standoff. Yeah. But look, I mean, I think it's up to the Biden administration now to put some water in the president's wine. I mean, McCarthy, to his credit, past legislation, there was a lot less extreme than some members of his caucus wanted. If we remember McCarthy's speakership was only secured on multiple votes that had to bring in a kind of fringe, a Tea Party fringe of the party. This is how democracy works. It's not ideal. It's certainly not necessarily efficacious in terms of international financial markets, but this is how the cookie crumbles. And for the Biden administration to continue to say, no way, you know, we're going to concede one element of our budget that was, you know, our policy agenda that was articulated before the

election where you lost the House. You know, elections have consequences, okay? The Biden administration didn't maintain the House of Representatives. Republicans have control over it. I don't know, Janice, I hope that this president kind of sees some common sense here and comes back to McCarthy and there's some type of negotiation. I agree with you, though. I think the worry is that even if there's a negotiation, to what extent can McCarthy go back to the members of the GOP, many of whom had to vote for this legislation to increase the debt ceiling. So that was part of McCarthy's legislation. It wasn't just cutting Biden's spending.

It was actually increasing the limit on borrowing. Many of these Republicans worried about being challenged in primary fights from the right where their opponents are going to say, hey, this guy. is a rhino, a Republican in name only because he or she raised the debt ceiling. So look, you know, there's a lot of hard realities here. And I don't think the president gets a pass on this. Thank you, listeners, for your generous donations to the Friday Focus podcast. They are greatly appreciated. If you have not already become a regular supporter of the Munk Debates, now is a great time to grab what we call our support. level membership. It gives you access before the general public to all of our in-person debates,

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Now, back to our program. Here's what we're agreed and here's what we disagree. We are agreed that the politics of this are unforgiving. It is the politics that are driving this. This is a demand for 14% cut, 14% cut in, spending. Now, that's big. Just translate that to Canada. You realize that that is eviscerating an agenda, which is key to Biden's reelection. It is, in fact, the ability to flow funds to communities that have, you know, that flow funds to his voters. Well, yeah, that's what presidents do. They flow funds to his voters,

but in this case it happens that his voters are in many of the contested areas. You know, we're talking about Wisconsin, Michigan, the Rust Belt states where what the federal government does is do or die. And that's, in fact, a lot of what this spending is. Let's talk the politics of this. He's got to veto this bill. What would happen after a veto in a normal world? There'd be a negotiation, as you just said, right? And they would chip away.

and the administration would give and the speaker would give and you get to a torturous last-minute compromise. We've seen this drama before. It's been going on in U.S. politics. What's the difference this time? You put your finger on it. Not clear that giving an inch for McCarthy is actually politically possible now.

Look how narrow that majority was. This was a poison pill for core members of McCarthy's constituent. to fall. How does he bring back a compromise, which is the normal way things work? I can't see it happening. That's why I think we're in a different world. Yeah. Well, there's also just the reality that as the clock ticks here, and we get closer to a default and the U.S. government goes through whatever maneuvers it can to start slowing payments to federal workers to reducing a variety of of expenditures within the existing budget, you're eventually going to kind of fall off the cliff. And I think that's when, you know, there's going to be pressure on both these parties.

And the Republican Party has a large, you know, business constituency underneath it. And I think, you know, a lot of those businesses are hired, hired lobbyists and fund, you know, tens of millions and billions of dollars into presidential campaigns. I think people are aware of that. It's the unseemly side of the American system, but it can work and it can apply a lot of pressure, I think, to the GOP as well as to this president. But it just gets back to, for me, a fundamental issue is that the polarization of American politics seems to be just simply everywhere. And we're now into the stuff that really matters, the stuff that's not just about. trans athletes and whether they should be participating in women's sports or, you know,

Ron DeSantis and his, you know, crusade against Disneyland. This is really serious stuff because what I think listeners need to understand is that U.S. government debt is the global benchmark for a safe liquid asset. So everything else is priced off that. Canadian bonds, Japanese bonds, European bonds, corporate bonds, your mortgage, your credit card, your car payments, if you have them. This is the sine qua non of the cost of capital. And if this suddenly goes through some violent, like, turmoil of political uncertainty where the market can't figure out what's going to happen within 30 days, 60 days, 90 days, you are going to see disruption across the entire global credit space,

which in our highly indebted, financially interconnected global economy is in the trillions upon trillions of dollars of assets. So this truly is existential. It is. And we haven't talked at all about what this would do to the U.S. dollar, right? because the U.S. dollar, the other side of what you're just talking about, the U.S. dollar is a global reserve currency. You get this kind of disruption and the real prospect this time that there could be a default. Because if they stare each other down, this is the high noon, right? If they stare each other down, markets could be so alarmed if they don't see a way out that much of what you're talking about could happen and undermine confidence in the U.S. dollar, frankly, you know, you and I have talked on this, on this program

about what China and Russia are doing by setting up alternative payment systems. Those are others doing this in a highly polarized world. But this story is what the U.S. is doing to itself because of its deeply, deeply polarized politics. And they're coming home to roost. You have to hope. You have to hope. We've, you know, that. When push comes to shove, even the rhinos and the people around Biden are going to say, we have to find a way out here because the cost of letting this spin out of control, Sirius is way too mild the world. Edward, Richard.

Yeah, well, look, it's not going to be an exit this time around. But, I mean, just like Canada, you know, the U.S. really does have a deficit spending problem that we've taken in a lot of advanced economies. is COVID levels of spending, and we've now extended them almost indefinitely into the future. So I think, believe in this year in the U.S. federal budget, the percentage of the budget spent on debt financing costs is roughly 12%. The amount spent on the U.S. military of the total budget is 11%. And, you know, Neil Ferguson, who's a friend of the Monk debates and I listen to, and I think

is a smart thinker in terms of historical analysis, says that this is one. one of the tells traditionally of when empires run into trouble is when their debt servicing costs become greater than their military expenditures. So the Americans, like Canada, have a spending problem. It is going to have to get sorted out because there's all these unfunded liabilities related to Medicare, Social Security, on and on. In Canada, we don't have as much of a problem with that because of CPP and the fact that these funds are fully funded. But like the Americans, we have to somehow come to some understanding that indefinite deficit spending, try that as a tongue twister, has consequences.

And one of those consequences is vulnerability to political instability and polarization. It's like there is no free lunch. Yeah, there isn't. Let me just put a little balance on these scales. just looked at some numbers yesterday. The United States had 25% roughly share of world GDP in 1990. In 2023, 22, 22, 25%. Has not declined.

Let me add one other. Looking again, comparative GDP in the G7, the richest developed democratic economies in the world. United States now accounts for 58% of the GDP of the rich democracies. So it's astonishing. It's astonishing, given their dysfunctional politics, how vibrant that economy is underneath all this noise and how it continues, despite all the investment in the U.S. Declinist industry, how it continues to outperform every.

other democratic society in its economic productivity. Sure, China has come into the global economy and control and contributes now 20, 21. But I think again, underlying all of the noise, it's a mistake to bet against the United States. I would say it's the cleanest shirt in a pretty dirty laundry. We can agree on that. Yeah. Let's listen. leave it there. Okay, when we come back from the break, we're going to talk, um, wow, a new big foray of the Canadian government into online regulation. Canada is going to be one of the first countries in the world. I say this tongue in cheek, but hey, maybe joining Korea, it's North Korea and Cuba in a broad attempt to regulate streaming

platforms, um, and enforce Canadian content rules. Uh, we've got a take on this and we'll give it to right after this short break. Thanks for listening to this excerpt of the Friday Focus podcast. To get full-length editions of each and every episode of this program, simply go to our website, triple-w, the monk debates.com. Click on the Friday Focus tab in our navigation on the top right of the site. Make a donation as little as $25 a year of 50 cents an episode,

and we'll send you not only the full-length editions of each and every, Friday Focus podcast, but all kinds of special offers, perks, access to events, and additional content. Again, you can do that right now by becoming a donor to the Monk Debates at triple W. Monk Debates, MUNK, DebateswithanS.com.