Democrats and Republicans reached agreement on debt limits on Wednesday.
Congress cannot have an infrastructure bill. But at least it has an off-ramp.
Democrats and Republicans Agree on Debt Limits Wednesday.
Legislators sometimes reinforce their positions so deeply that they cannot extricate themselves. They are stuck on the road to oblivion – as the headlights of distress swung down the highway.
So everyone looks for a way out.
Similar was the case with the loan limit. Favors were heavily on the politics of debt limits and the Democrats’ efforts to approve trillions in social spending.
But the real politics of the national economic crisis came to the fore.
“Many Republicans take pride in this, pushing us to the edge of default,” said Senate Majority Leader Chuck Schumer, D.N.Y. “Some of them (Republicans) want us to default.”
Schumer voted Wednesday afternoon to break down a filibuster on a bill that would suspend the loan limit until December 2022. Democrats were ready to hold their noses and vote to clean up the filibuster. But Republicans vowed to keep filming. If all 50 Democrats voted, the Senate was still short of 10 votes, reaching the 60-vote threshold needed to quell the filibuster.
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There were warnings of what could happen if the federal government crashed into debt limits. Treasury Secretary Janet Yellen warned the government would not have enough money to pay health care benefits to Americans because the US could not borrow to cover the gap.
Senate Minority Leader Mitch McConnell, R-Ky. Truly sidestepped one of your questions on Tuesday, when asked if he’d heard about the GOP from any big bankers or Wall Street stalwarts sitting outside the debt ceiling battle. It was thought that the investment community would upset Washington if lawmakers ran into a debt ceiling crisis.
The House of Representatives notoriously failed to pass a financial rescue package in the fall of 2008 as the Dow hit a then-record 777 points during the Great Recession.
“The market thought ‘They’re not dumb enough not to pass it on.’ Guess what? They were so dumb they couldn’t pass it,” said Jim Eurio of TJM Institutional Services. “I think the market will punish Washington very quickly and swiftly and aggressively (if Congress doesn’t act).”
Washington began to worry that ratings agencies could undermine the creditworthiness of the United States even before October 18 – the deadline the Treasury says the US would run out of cash. Standard & Poor’s downgraded the US in 2011 – even though Congress lifted the debt limit ahead of a deadline. The S&P suggested that Congress injected too much drama into the process. It did little to instill confidence in the way America was governed.
“America is AAA-rated. It’s in a negative eye with the S&P,” said Douglas Holtz-Eakin, former director of the Congressional Budget Office and president of the American Action Forum. “They’re looking for reasons to downgrade America. This could very well be the reason they’re looking for. I’m worried about politics having really economic consequences that we really don’t like.” ”
So, now everyone blinks on the loan limit.
Democrats will apparently follow McConnell’s proposal to suspend the debt limit for the time being and address it again in December.
And, as is often the case, Congress is gearing up for another messy holiday season — especially with government funding ending on December 3.
Why was McConnell ready to make the deal? Why were the Democrats ready to make a deal?
Let’s start with McConnell. He is looking forward to the mid-term elections. McConnell wanted to underline the chaos of a unified Democratic government, which was struggling to lift the debt ceiling. He said Democrats can go it alone. McConnell paused, noting that Democrats were focused on passing trillions in new, social spending.
The GOP drama is to get the Democrats on record twice the debt limit. Once again in December. Getting out of the way would enable Democrats to pass their social spending package. Republicans expect Democrats to grab onto it in 2022.
Schumer is also eyeing the medium term. He hoped to portray the GOP as a detractor on the debt ceiling. But he knew that the debt ceiling crisis would hijack the Democratic agenda. Democrats could not afford an economic crisis, a market shock, layoffs and a bankrupt Treasury – all bound by debt limits. It would undermine the Biden presidency.
If Congress was hip-deep on debt limits, Democrats would have had no way of pushing their social spending package forward in a matter of weeks.
Therefore, both sides had the advantage of reaching a settlement.
The immediate reaction to McConnell’s offer was mixed. Several GOP senators declined to comment after Kentucky Republicans briefed their members on the proposal during a weekly party lunch at the Capitol.
Democrats were all over the place, from thoughtful to astonished to knee-jerk reactions.
“McConnell said,” declared Sen. Elizabeth Warren, D-Mass. “Now we are going to spend our time looking after children, health care and fighting climate change.”
“I would definitely consider (McConnell’s offer),” said Sen. Chris Koons, D-Del. “It depends on the conditions.”
“I don’t understand,” complained Sen. Chris Murphy, D-Con. “Why (McConnell) has plans like Rube Goldberg… it’s getting ridiculous.”
Sen. Mazi Hirono, D-Hawaii, was more outspoken. “It’s bull-s&%#,” said Hirono of McConnell’s plan.
McConnell has long said that Democrats should use a special, filibuster-waiver process known as budget reconciliation to approve a debt ceiling package. Still, Democrats said they would not use reconciliation.
It’s not clear if this will blow everything up.
“If Democrats want to raise the debt limit, they can use the conciliation process,” said Sen. Lindsey Graham, R.C., the top goper on the budget committee. “I will try to make the process as smooth as possible.”
Remember that this is only a Band-Aid fix for the loan limit. The same is true with the interim spending bill that is funding the government in early December.
“We need a new form of fiscal restraint rather than a debt cap,” said Robert Bixby of the Concorde Coalition. “The credit limit isn’t really reducing it. It doesn’t work and it has the dangers that we’re seeing now.”
So instead of actually solving the problem, the Congress just pulled to the rest stop.