All budget eyes (and ears, legs, arms and mouths) will turn to the federal debt ceiling this week as the government gets closer to reaching its existing borrowing limit and as Treasury officials and Wall Street executives make increasingly frequent and shrill predictions about the disastrous consequences of it not being raised.
The date a debt ceiling is reached is based on a number of ever-changing factors and, therefore, is virtually impossible to predict with any certainty, but all indications are that it will happen in less than two weeks. That’s when the federal budget game of chicken actually begins and the Treasury will start to implement cash management techniques that it says will be able to stave off default for about two months.
There obviously will be lots of moving pieces as the debate continues, but the calculus in getting a debt ceiling increase adopted before the word “default” becomes so commonplace that financial markets wreak havoc with interest rates and stock prices is actually not all that difficult.
I see virtually no way tea party folks in the House and Senate will support a debt ceiling increase unless it includes all of their demands. In addition to significant spending cuts, they want the health care overhaul law defunded or repealed outright, a tax cut, and overwhelming changes in the Dodd-Frank financial regulatory reform law.
Attaching those extreme requirements to a debt ceiling increase will be unacceptable to many or even most others in the House, Senate and White House. That would be OK if the tea party people had enough votes to pass the bill themselves, but they don’t.
There are 241 Republicans in the House, 59 of whom voted against the continuing resolution for the rest of fiscal 2011 that Congress passed before leaving for the just-ended recess, and many in this group of 59 are likely to vote against raising the debt ceiling as well. Given how politically toxic the debt ceiling issue is, I’ve been told that there could be at least 80 GOP votes against raising it, no matter what the impact might be on interest rates, stock prices and the economy. A majority of Republicans could even end up voting against the bill if they believe a debt ceiling increase can be adopted without their support.
That leads to a number of questions.
First, are House Democrats behind the eight ball or in a position to dictate the terms of the debt ceiling increase debate? On the one hand, it could be Democratic votes that provide the majority needed to pass an increase in the debt ceiling and that could give the GOP a chance to vote against the bill, avoid the financial and economic meltdown some are predicting, and still have the issue in the 2012 election. On the other hand, because a debt ceiling increase can’t pass without their votes, House Democrats might be able to dictate what is or, more importantly in this case, is not in the bill.
Second, the Republicans’ biggest advantage on the debt ceiling may be that they control the House floor and, therefore, can stop the legislation needed to increase the amount the government may borrow simply by refusing to schedule a vote. Will Democrats counter by offering an amendment to increase the debt ceiling to every other bill considered by the House over the next two months? Will the GOP counter that by limiting the amendments even though that would mean giving up on the open rules that it has so proudly touted since the start of this session of Congress?
Third, will it really take a near or actual economic crisis for Members of Congress to justify supporting a debt ceiling increase, or will a serious threat be enough to change the politics and make a vote in favor of it possible? At what point will public opinion change because voters start to realize that there will be a negative effect on their own lives if the debt ceiling isn’t raised?
Fourth, given recent polls that show seven of 10 Americans do not want the debt ceiling raised, will most or all House Members have to vote against the bill at least once so they can show their constituents that they were against it before they were for it? Will Wall Street — especially foreign investors — get spooked if a debt ceiling increase bill goes down in the House, or will it recognize that an initial “no” vote is needed to make it easier for a bill to be enacted? And whose hand will be strengthened if a debt ceiling increase is defeated? Will the House GOP be able to claim the bill was voted down because the spending cuts and other provisions attached to it weren’t big enough, or will Democrats be able to say that they are just as adamantly against raising the borrowing limit as Republicans?
Finally, will House Republicans be able to conclude a deal on the debt ceiling with the White House and Senate Democrats early in Treasury’s two-month intervention or, as was the case with the CR, will Congress have to have another get-Nell-off-the-tracks-at-the-last-minute-before-the-train-comes moment?