Debt Ceiling Deja Vu
- In a WSJ Op-Ed, Treasury Secretary Janet Yellen says Congress, Raise the Debt Limit
- CNN says Democrats face GOP blockage on raising debt ceiling as time is running out
- Fox News reports Yellen warns failure to raise debt ceiling could trigger ‘economic catastrophe’
- The Washington Post says U.S. default this fall would cost 6 million jobs, wipe out $15 trillion in wealth, study says
Economic Catastrophe! Time Running Out! 6 MIllion Jobs!
Fox News: Treasury Secretary Janet Yellen renewed her call for Congress to raise or suspend the nation’s debt before October, warning that failure to do so could trigger an unprecedented financial crisis in the U.S.
WaPo: Mark Zandi, chief economist at Moody’s Analytics, found that a prolonged impasse over the debt ceiling would cost the U.S. economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth, and send the unemployment rate surging to roughly 9 percent from around 5 percent.
WaPo: “Stock prices would be cut almost in one-third at the worst of the selloff, wiping out $15 trillion in household wealth,”a Moody’s report finds.
How many times have we heard such talk?
Congress and the White House have changed the debt ceiling almost 100 times since the end of World War II, according to the Committee for a Responsible Federal Budget.
Most of the time there is no brinkmanship but today we have it.
Time On the Clock
Time isn’t quite yet running out.
The US will not turn into a pumpkin on Oct 1.
There might be a partial shutdown of some items on Oct 1. However, Moody’s “best estimate” is the critical date is Oct. 20. That when Social Security checks would stop or the US would stop interest payments.
October 20 is about a month away. That’s a long time in politics.
U.S. House Approves Bill to Suspend Debt Limit
Tuesday evening, Reuters reported U.S. House Approves Bill to Suspend Debt Limit
Democrats in the House of Representatives passed a bill on Tuesday to fund the U.S. government through Dec. 3 and suspend the nation’s borrowing limit until the end of 2022, sending it to the Senate where Republicans have vowed to block it.
The House vote was 220-211 along party lines. It was unclear how soon the Senate would act.
After the House vote, McConnell and fellow Republican Senator Richard Shelby said they had introduced a bill to fund current government operations through Dec. 3, but without raising the debt limit.
Republicans said they would support a temporary spending bill to avert a shutdown if the debt limit extension were stripped out of the bill.
Showdown Looms
Bloomberg reports Democrats Push to Suspend Debt Ceiling as GOP Balks
In a sign of its expected defeat in the Senate, top Appropriations Committee Republican Richard Shelby announced he would vote against the bill over the debt ceiling increase.
The stopgap bill would prevent a shutdown of most U.S. federal agencies and keep them operating through Dec. 3.
The bill also contains $28.6 billion for recovery from a series of hurricanes and wildfires as well as $6.3 billion to resettle refugees from the U.S. war in Afghanistan.
Oklahoma Republican Tom Cole, the ranking Republican on the House Rules Committee, said there is “broad bipartisan” agreement on the stopgap spending bill and disaster aid portions of the bill.
“Attaching the debt ceiling is another matter altogether,” he said. “With all due respect I would not write a blank check for my family or friends and I am certainly not going to do so for the Democratic party.”
Whose Responsibility Is This Mess?
Republicans claim this is the Democrats’ responsibility. That sounds accurate, but it isn’t.
The debt ceiling has been breached due to past commitments and the Trump tax cuts played a part.
It’s not just the $4.5 trillion the Democrats want to spend. And Republicans already signed on to $1 trillion of that $4.5 trillion.
However, Republicans do have genuine concerns about giving the Democrats a blank check on future funding.
What About Reconciliation?
Democrats can pass the bill by reconciliation if they can come up with a bill that all 50 Democrat Senators will support.
That is the path Republicans want to force Democrats to take, but it is potentially dangerous one for Republicans.
Senators Joe Manchin and Kyrsten Sinema could get upset McConnell’s strategy.
One Way or Another – No Default
Republican Senator Chuck Grassley said his party could avoid blame for a failed vote on the debt ceiling and government funding, if Democrats requested unanimous consent to pass the measures with a simple majority vote, skipping the procedural step that requires a supermajority of 60 votes.
One way or another, the US will not default. The most likely ways are a stopgap measure buying more time or unanimous consent.
Will This Matter?
A friend of mine asked me that the other day. This was my response:
Generally no. It’s all grand theater. Yellen is saying by the end of September or beginning of October but it’s really more like mid-to-late October. That’s a decent chunk of time for someone to blink.
Republicans got very burned on this once, now it’s the Democrats turn. Most likely they will propose some small spending item Republicans can go along with and the Republicans will.
Potentially Explosive Mix
However, it’s important not to underestimate how totally unrelated things can change the setup.
What’s happening in China might be a very big deal. And if the Evergrande collapse in China does not fizzle, then worries over minor concerns like this debt ceiling can take unusual and unwarranted importance.
Stock market psychology is very important.
In addition to debt ceiling concerns, here are the pending items: An infrastructure package, another $3.5 trillion on top of that, tax hikes, and AOC’s demand for 80% clean energy by 2030.
This is a potentially explosive mix on top of a massive stock market overvaluation issue.
Things like the debt ceiling that would otherwise not matter and should not matter, suddenly do, and for periods long after the alleged crisis is averted.
A psychology change away from risk will be very important and it’s guaranteed to happen at some point.
If it happens now, some will blame the debt crisis, others China, but stock market greater fool exhaustion will be as good an answer as any.
16 Tons
The lead image is from a 2017 article RAISE THE ROOF, OR AT LEAST THE DEBT CEILING.
Amusingly, the debt ceiling then was 19.8 trillion. It’s over $28 trillion now.
Huge Credit Stress Starting in China
Meanwhile, in case you missed it, please consider Huge Credit Stress Starting in China May Easily Rock the Whole World
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Mish
France just announced that it is sending the ambassadors
back to their posts. That was quick. Lack of support from the other EU states
had become obvious. Macron is feeling screwed by a lot of people these days.
I am not French so it is no problem for me. My wife however
is French and I have had an earful of what she thinks of Biden, the UK, Australia and
submarines.
A wise man once said:
If you know nothing
and do not speak then you are wise. If you think you know but are unsure and
you say nothing you are also wise. If you are sure and yet you still say
nothing then you are married
I wrote sixteen comments and what do I get
Only one reply and that was a threat
Oh Mish let me tell you I can’t go
I owe my soul to the media whores
. Then my artistic endeavor was worth it. You, Sir are a gentleman and a scholar.