Well, House Speaker Kevin McCarthy and President Joe Biden have reached a tentative agreement on the debt limit. Far-right Republicans are already castigating the deal as “caving in”. I suspect we will start hearing complaints from progrssive Democrats along the same lines. Now comes the difficult chore of getting something to pass both houses of Congress. Moira Warburton, Katharine Jackson, and Gram Slattery report at Reuters:
WASHINGTON, May 28 (Reuters) – After tough negotiations to reach a tentative deal with the White House on the U.S. borrowing limit, the next challenge for House Speaker Kevin McCarthy is pushing it through the House, where hardline Republicans are already threatening to sink it.
As Democratic and Republican negotiators iron out the final details of an agreement to suspend the federal government’s $31.4 trillion debt ceiling in coming days, McCarthy may be forced to do some behind-the-scenes wrangling.
“We’re going to try” to stop it from passing the House, Representative Chip Roy, a prominent member of the hardline House Freedom Caucus, said on Twitter. House and Senate Republicans were critical of the deal’s time frame and emerging terms.
A failure by Congress to deal with its self-imposed debt ceiling before June 5 could trigger a default that would shake financial markets and send the United States into a deep recession.
Republicans control the House 222-213, while Democrats control the Senate 51-49. These margins mean that moderates from both sides will have to support the bill, as any compromise will almost definitely lose the support of the far left and far right wings of each party.
For the last 50 years or so both political parties have been drifting away from being the “big tent”, catch-all parties they have always been to being programmatic parties. This contretemps illustrates the hazards of that transition. Over the next few days we’ll see just how strong a speaker, majority leader, and president we have. I suspect the answer is “not very”.
BTW although I’ve read dozens, maybe hundreds of complaints about the debt limit, I haven’t read one credible explanation of why the Congress preferred it a century ago when they created it to fund World War I.
If I am reading this right they didnt touch any entitlement spending, military or veterans spending so it ends up affecting just a small (15%-20?) part of our budget?
Steve
That’s the way I read it, too, steve.
It appears the “compromise†was throwing a few crumbs to both sides, without having any changes that would really make a budgetary difference. I also think the default fears were hyped just to move the debt ceiling higher without too much discussion. Supposedly, though, revenues flow into the treasury in June, where, with a prioritization of what debt was paid, the US could weather a deeper budget conversation longer than
June 1 or June 5, as Yellon threatened.
“https://www.zerohedge.com/markets/hard-pass-heres-whats-debt-ceiling-deal-republicans-are-about-nuke”
We are not a serious country when it comes to our finances.
We are not a serious country when it comes to our finances
It’s only when we crash and burn do people really wonder “How did this happen?†Until then, we just coast along, merrily distracted and blind to all the symptoms of a faltering economy.
Again, hitting the debt limit does not and actually cannot cause default. Default is a separate decision, independent of the limit. What hitting the limit would do is impose a balanced budget, no deficit spending, and that requires spending cuts of 5 to 10%.
Basically, its just a horror show designed to scare the public.
Our big tent parties started converting to ideological parties in the late 60’s, and the process was complete by the end of the 70’s. The change was driven first by the Civil Rights movement that drove Southern Democrats into the Republican Party and liberal Republicans into the Democrat Party. Nixon and Ford were arguably liberal, and Rockefeller definitely was. John and Robert Kennedy were center right Democrats, but were well to the left of the modern Republican Party.
RFK, Jr., who seems to align better with his murdered father and uncle than with progressive Democrats, could not conceivably be a modern Republican, but a 60’s Republican, though unlikely for an Irishman, is not utterly impossible, viz. Rockefeller.
Until the big change, the Republicans were on average to the left of the Democrat Party, and it had been founded as an abolitionist progressive party. Teddy Roosevelt and Herbert Hoover were self described Progressives. Reconstruction was a leftist, progressive movement, and it was entirely Republican.
“Over the next few days we’ll see just how strong a speaker, majority leader, and president we have. I suspect the answer is “not veryâ€.”
I am not sure how to interpret this. It is 100% certain this bill will become law, I predict a relatively narrow margin in both houses but the “yes” votes will be fairly bipartisan (moderates and those close to Congressional Leadership). The negotiations and resultant bill are within the range of expectations in a must pass situation in a divided Congress and Government.
As for actual “restraint” to the budget. “Restraint” will only occur if the economy (specifically the treasury market) forces the Government’s hand. I don’t see it yet, treasuries are still yielding below inflation, so the cost to borrow for the Government is still “negative” in real terms.
bob sykes: What hitting the limit would do is impose a balanced budget, no deficit spending, and that requires spending cuts of 5 to 10%.
There is no statutory provision for that. The law requires certain spending. Not raising the debt ceiling means that those bills can’t get paid. When you don’t pay your bills on time, it’s a default.
Dave Schuler: I haven’t read one credible explanation of why the Congress preferred it a century ago when they created it to fund World War I.
Because the eventual cost of the war was unknown. It was a Liberty war bond credit card (as opposed to a specific appropriate).
The eventual cost of everything is unknown. That still doesn’t explain why the Congress preferred that over other options or didn’t return to the status quo ante after the war was concluded.
Dave Schuler: The eventual cost of everything is unknown.
While there is always some uncertainty, there are many spending programs for which reasonable estimates are available. Wars at not like that.
Dave Schuler: That still doesn’t explain why the Congress preferred that over other options
Congress considered taxes, but because the cost was unknown, it meant that they may have had to go through the political problem of raising taxes more than once. The economy was working at capacity, so they wanted to reduce consumption and divert production to the war effort. Liberty bonds did this. People bought bonds rather than consumer goods.
It all depends on what “debt” means. If debt means future promised spending that requires borrowing, then you are correct. However, if debt is defined as the way most people define it (funds previously borrowed) by the US government, then Bob is correct. The 14th Amendment doesn’t specify.
Andy: However, if debt is defined as the way most people define it (funds previously borrowed) by the US government, then Bob is correct.
Sure, a business may have debts at the bank. But a business may also have other obligations. The Congress mandates certain spending, including for purchases. Because these bills are either statutory or contractual obligations; by law, the executive must pay those bills. Now, Congress can certainly pass a new law changing statutory obligations (though contractual obligations would remain), but that requires an act of Congress.
No one knows exactly how markets will look at such an event, but it wouldn’t be good. At the very least it shows gross incompetence. Unpredictability and uncertainty would mean higher rates of return would be demanded, exacerbating the debt problem.
The United States has more than enough economic wherewithal to meet their obligations, but they want the benefits, just not the costs. They want their cake and eat it too.