by Greg Valliere, AGF Management Ltd.
September 21, 2021
A GAME OF CHICKEN: This is why people hate Washington — there’s a genuine threat of a government shutdown because politicians in both parties want to prove a point.
THE KEY FACTOR in this debate is inclusion of a debt ceiling hike in legislation to keep the government running when the new fiscal year begins on Oct. 1. This legislation, called a continuing resolution (CR), will not be accepted by Republicans if a debt ceiling hike is included.
A DEBT CEILING HIKE isn’t close to resolution — a proposal yesterday from leading Democrats to combine it with the CR was adamantly opposed by Senate Minority Leader Mitch McConnell.
THUS THE THREAT OF A GOVERNMENT SHUTDOWN on Oct. 1 will hang over Washington for the next week. What are the options?
THE MOST LIKELY OPTION, OF COURSE, is a “kick the can” delay, extending funding to keep the government open for another month past the Oct. 1 deadline, which will keep this issue on the front pages as Treasury runs out of money late next month.
A LONG SHOT: Some Democrats are re-examining the 14th amendment to the Constitution, passed in 1868. It contains a “Public Debt Clause” that allows a president to borrow without Congressional approval. (For a detailed overview of this option — and the likely legal challenges — see this morning’s Roll Call.)
WHERE DOES THIS STALEMATE LEAVE tax hikes and new spending? A House vote on the massive $3.5 trillion bill most likely will not occur by the Sept. 27 deadline set by Speaker Nancy Pelosi; she needs to focus on keeping the government open. Meanwhile, the tax hikes and new spending face a major haircut.
THE OUTRAGEOUS BOTTOM LINE is that this fight over keeping the government open, and raising the debt ceiling, is about making a point. The Republicans want to show the public that Democrats want to spend and tax aggressively; the Democrats want to show the public that the GOP is willing to shut down the government and default on federal debt.
AS WE WROTE YESTERDAY, a market sell-off is actually welcomed by some members of both parties; they view a crisis as an opportunity to make their case and blame the other party. This appalling dysfunction will persist for several weeks.
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This post was first published at the AGF Perspectives Blog.
