by Greg Valliere, AGF Management Ltd.
CONFRONTING THE POSSIBILITY OF SPENDING CHRISTMAS EVE in Washington, Congress finally picked up the pace yesterday.
THE KEY DEVELOPMENT is the likelihood of a deal to raise the federal debt ceiling via a complicated process that would waive Senate’s filibuster restrictions. The bottom line is that a government default — which was never likely — would be avoided.
A DEAL BETWEEN CHUCK SCHUMER AND MITCH McCONNELL to effectively raise the debt ceiling through next November’s election has angered conservatives, but McConnell probably has just enough votes to prevail later this week.
McCONNELL ASSERTS THAT THE DEMOCRATS will have their fingerprints on the deal, while angry conservatives are arguing that he has caved in. Explaining how this process will work would require several paragraphs; the main point is that there won’t be default.
THUS IT APPEARS THAT THREE OF THE FOUR DECEMBER ISSUES WILL BE RESOLVED: A bill has passed to keep the government open until Feb.18; the massive defense spending package is close to enactment; and now a debt ceiling deal is close. That leaves just President Biden’s $2 trillion-plus Build Back Better bill, which is on thin ice.
ONCE AGAIN, THE SPOTLIGHT SHINES on Sen. Joe Manchin, who said yesterday that he thinks the cradle-to-grave Biden bill is too expensive. Exasperated Democrats are considering a Senate floor vote on the bill even if Manchin isn’t on board, but that would accomplish little. The more likely scenario is a stalemate continuing into 2022.
FOR THE FINANCIAL MARKETS, the biggest short-term Washington development is the impending deal on the debt ceiling. The biggest long-term development is the Federal Reserve’s determination to speed up the end of its asset purchases, paving the way for an initial rate hike by late spring.
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THE BIDEN-PUTIN CONVERSATION had only one modest surprise — the two Superpower leaders were surprisingly friendly on a personal level, joking and flattering, not lecturing. Otherwise, yesterday’s call reinforced our belief that an uneasy stalemate will persist for months to come.
PUTIN UNDOUBTEDLY KNOWS that the U.S. has re-united NATO and has the ability to inflict enormous economic damage on Moscow. More importantly, a Russian invasion would encounter fierce resistance from well-armed Ukrainian patriots. As David Ignatius details in a brilliant column in this morning’s Washington Post, a Putin invasion could backfire against the Russians.
SO IT LOOKS LIKE A STALEMATE, not the threat of an imminent war that breathless TV anchors proclaimed yesterday; the public in the U.S. and Russia would recoil at the prospect of a war.
A LENGTHY DIPLOMATIC PROCESS is coming, with Putin engaging in cyberwarfare and using his natural gas supplies to intimidate western Europe. But Biden has the stronger hand, and can use the threat of crippling economic sanctions to keep this from erupting into a major crisis.
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This post was first published at the AGF Perspectives Blog.
