Ceiling the deal
The US government is once again approaching its somewhat arbitrary, regularly expiring $16.7 trillion borrowing limit. The Treasury Department said on Monday that the US will run out of money to pay its bills in mid-October, and Treasury secretary Jack Lew told CNBC that the president is “not going to be negotiating over the debt limit.” John Boehner, meanwhile, promises a “whale of a fight” over spending cuts.
That America is staring down yet another debt ceiling debacle hasn’t led to mass panic just yet. Neil Irwin points out that the VIX, the so-called “fear index,” is still lower than it was earlier in the summer. Still, Mohamed El-Erian told Bloomberg TV that the US economy “cannot absorb a whole list of uncertainties, including another fight on the debt limit.” Peter Coy has five reasons why the debt ceiling fight could be worse this time around — including a crowded Congressional calendar, a GOP push to repeal Obamacare, and the fact that the economy is weaker now than during previous debt debates.
Even a rerun of 2011’s standoff would be a nightmare: Matt Phillips has a few great charts showing how the 2011 debt ceiling fight crashed consumer confidence, hurt the stock market, cost the US its top debt rating with S&P, and saw billions withdrawn from mutual funds. These standoffs, Justin Wolfers wrote, were “an act of economic sabotage.”
Josh Barro — unlike his fellow BI scribe Joe Weisenthal — thinks this time will be different. House Republicans, Barro says, aren’t even in agreement over what spending cuts they’d like, including whether to cut Social Security and Medicare:
If Republicans were to stage another debt ceiling showdown over entitlement reform, they would have to (1) threaten to cause an economic crisis unless (2) they are given a package of reforms that many Republican officials don’t even want, which (3) would also happen to be hugely unpopular with voters.
This. Is. Never. Going. To. Happen.
Jared Bernstein expects a deal too, even if Congress has just nine working days in September. Citi, for its part, projects a deal to keep the government running and to raise the debt ceiling, though it warns that a “contentious debate may rattle short-term markets.” — Ryan McCarthy
On to today’s links: