Senate leaders join struggle to find passable bill. Stock markets only mildly perturbed. “Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago,” Bloomberg reports…
Texas Senator Ted Cruz, whose quixotic campaign to “defund” Obamacare was the stick in the spokes that got us here, could – could – cause a default all by himself, Joshua Green reports in Bloomberg BusinessWeek:
How could this happen? Because the Senate can move quickly when necessary–but only by unanimous consent. Let’s say Harry Reid and Mitch McConnell strike a deal today (that’s looking unlikely). Cruz surely won’t like it and has said repeatedly, “I will do everything necessary and anything possible to defund Obamacare.” If he’s true to his word, he could drag out the proceedings past Thursday and possibly well beyond. “If a determined band of nut jobs wants to take down the global economy, they could do it,” says Jim Manley, a former top staffer for Reid. “Under Senate rules, we are past the point of no return–there’s not anything Reid or McConnell could do about it.”
Read the full piece here. There’s no indication that Cruz is that crazy?
“Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago,” Bloomberg reports.
Congress won’t act until markets panic, they say. Comforted by the implication that Congress can and will act, markets don’t panic. But Congress won’t act until markets panic. Comforted by…
Anatomy of a deal
How might an eventual deal look? What are the sticking points?
Congress must decide how long to extend the debt limit and how long to fund the government for. Legislators must also decide the level at which to fund government – whether or not to retain the deep “sequester” cuts that took effect on March 1, and for how long.
Republicans would like a shorter debt limit extension in order to maintain leverage in budget negotiations. Democrats would like a shorter-term funding bill in order to accelerate the end of the sequester, which chunked $85bn off the budget between March and October.
At the end of September, Senate Democrats passed conciliatory legislation that would have funded the government at sequestration levels through November – but the bill was rejected by House Republicans.
Token Conservative New York Times columnist Ross Douthat retold the history in a recommended Twitter lecture on Sunday:
But now the “original” potential deal to keep government open over the short term at sequester levels is gone, and everything seems back in play. The distance between the two sides on the debt limit extension and the term of the spending bill is a matter of months, NBC’s John Harwood reports:
The Washington Post’s Greg Sargent sees a possible deal by which Democrats would demand the destruction of the debt ceiling as a counterweight to Republican demands on spending:
So here’s what Dems should do. If Republicans refuse to budge off their insistence on lower spending levels, Dems should call their bluff by demanding a permanent disabling of the debt limit as an extortion tool as part of any short-term compromise. (Yes, Republicans will say No. But bear with me.)
If, somehow, a deal is reached this week in the Senate that involves Republicans giving ground on spending levels, Dems should make the push for a permanent disabling of the debt limit a key goal in the next round of formal, long term negotiations.
In the short term, if Dems accept sequester level spending into early next year in exchange for permanent disabling of the debt limit, it would not be an awful outcome.
Read the full piece here.
Senator Joe Manchin of West Virginia, a centrist Democrat, offered a relatively optimistic view of the negotiations this morning on CNN. Talking Points Memo caught the spot:
“I think we’re 70-80% there, putting the extra 20-25% to it,” Sen. Joe Manchin (D-WV) said Monday on CNN.” “When should the (continuing resolution) come due, when should the debt ceiling come due, and does that give that time for the budget conference, the budget committees to sit down and work through this? Those are the details that have to be worked out.”
Leaders of the World Bank and IMF warned at a meeting in Washington DC Sunday of the disastrous consequences of a US default, the New York Times reports. Some damage has already been done, as borrowing costs for the United States – over the short term, at least – are creeping up.
Christine Lagarde, managing director of the International Monetary Fund, warned of “massive disruption the world over” if the United States plunges into default. At the start of the month she said it is “‘mission-critical’ that [the US default risk] be resolved as soon as possible.”
From the Times report on the Washington meeting:
Participants at the meetings remained on edge, given the gravity of the threat. Ms. Lagarde said “that lack of certainty, that lack of trust in the U.S. signature” would disrupt the world economy.
Wolfgang Schäuble, the German finance minister, issued his own urgent appeal. “The fiscal standoff has to be resolved without delay,” he said in a statement released by the I.M.F.
Read the full piece here.
The Dow Jones Industrial Average opens the day down just a bit, about a half-percent. The bets are still on, for now.
President Obama spoke yesterday with House minority leader Nancy Pelosi, and the two party leaders in the Senate – Democrat Harry Reid and Republican Mitch McConnell – have been holding talks through the weekend that were expected to resume this morning.
The needle they’re collectively trying to thread is legislation raising the debt ceiling that would be acceptable to both Senate Democrats and House Republicans. The current legislation thought to be under discussion would also provide for reopening government and settle a budget through the New Year.
If a catchall deal proves unworkable, Congress may have to pass the debt limit bill separately. However it may actually be easier to pass a catchall deal, because there are more variables and thus more room for negotiation – and compromise.
Guardian Washington correspondent Dan Roberts (@RobertsDan) is tracking the action:
Democrat majority leader, Harry Reid, appeared briefly in the Senate to say he had a “productive and substantive” discussion with Republican Mitch McConnell and was optimistic about a deal, but suspended public proceedings until 2pm on Monday while his backroom talks continued.
The only outward sign of movement from the White House came in a Sunday afternoon phone call with House minority leader Nancy Pelosi, in which President Obama reiterated his insistence on Republicans agreeing to end a government shutdown and extend the debt ceiling before he would negotiate any budget concessions.
Read the full piece here.
Good morning and welcome to our live blog coverage of yet another moment of truth in Washington. If the nation’s legislators can’t cut a deal soon – they have a day or two; just exactly how long is a matter for debate – then we get to find out if Warren Buffett was just being a hysterical ninny when he compared default to “a nuclear bomb”.
Negotiations through the weekend failed to produce a deal, or clear a pathway to a deal. Since Friday, talks between House Republican leaders and the White House have fallen apart, and talks between the party leaders in the Senate have sprung up. The House is scheduled to convene today at noon, the Senate shortly thereafter.
The top priority for Congress is to pass legislation that would raise the debt limit sufficiently to fund the Treasury’s accounts payable. They also need to pass a bill to reopen the federal government, which has been partially shuttered for 14 days now (it closed on 1 October). In the current environment, having the government closed is only Code Orange. The debt limit is the Code Red bit.
Investors are holding their breaths to see what the stock market will think of the weekend’s dithering. Knowledgable analysts have suggested that a stock market crash may be the most likely spur to get Congress to actually act. The bond market is closed Monday for the Columbus Day holiday, but stocks are open. The Dow still was relatively unbothered by the crisis on Friday.
The Treasury has said the “extraordinary measures” it has taken since May to cover expenses will be exhausted Thursday, at which point the government will be operating on about $30bn cash on hand and a prayer, with neither expected to last long
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