It has now become a ritual that pops up frequently, but one that Wall Street seems to notice only when it reaches the crisis level. Treasury Secretary Jack Lew has stated that the federal government is basically running on fumes and won’t be able to meet its massive spending obligations after the first week or so of November. The “Debt Ceiling Dance” has started again.
What complicates matters has been a distracting search to find a new Speaker of the House of Representatives to replace the outgoing John Boehner who could meet the requirements of a relatively small number of very conservative “Freedom Caucus” members of the House GOP Conference. For while a vote to raise the debt ceiling, which would have full support of House Democrats, needs a seemingly easily attained number of votes by House GOP members, the vote for a new Speaker is far more problematic. And the question now becomes, “what comes first, the chicken or the egg?”
Speaker Boehner has indicated that he intends to move on the debt ceiling before his heir apparent, Rep. Paul Ryan, is formally elected to replace him. But Boehner and his team chose not to attempt a “clean” measure to increase the nation’s debt capacity last week. According to numerous reports, there simply were not enough Republican votes to pass the measure out of the House.
Here’s what Newsvestors need to know. While passing the debt ceiling is personally acceptable to the some 50 plus Republican members who in several different independent studies are deemed basically “guaranteed” votes for any GOP House leadership supported legislation, the percent of their constituents who favor such a move is well below 50%.
As a result, even the true loyalists are hesitant to move, and that’s with the clock ticking. President Obama says he wants clean legislation (that being with no other matters attached to it) or he will veto any debt ceiling increase bill. The timing is highly problematic. If the House does not pass legislation before Wednesday (October 28th) then the discourse related to the debt ceiling could well turn rather dire. With CNBC as the host of the GOP debate that evening, candidates will surely be asked if they favor raising the debt ceiling. Based on past polling of GOP voters, it would seem to be a potential campaign ending move for any candidate to answer anything but “no.”
That would put House leadership in a deeper fix. Most members don’t want to be on record supporting something that the vast majority of their party’s presidential candidates declared a “no go” just a few days earlier.
Consider this portion of a very significant FoxNews.com story posted this weekend:
The GOP-controlled chamber on Friday adopted a measure — through a process called “budget reconciliation” — that repeals large parts of ObamaCare and defunds Planned Parenthood.
The process allows the Senate to pass such legislation without a super-majority, which the Republican-controlled upper chamber has failed to get in recent key votes.
The move is largely considered another symbolic effort against the president. But another by House Republicans — including proposed cuts to Medicare and other social service programs in the debt ceiling plan — could cause problems after Nov. 3, when the government technically runs out of cash.
The administration has asked for a measure “clean” of any such amendments and has vowed to veto one that includes them.
The administration is asking Congress to increase the federal government’s $18.1 trillion borrowing cap so that it can continue to pay its bills in full and on time.
Administration officials warn that failing to raise the cap would result in a meltdown in the financial markets.
In the end, the likelihood that a debt ceiling bill will pass is very high. But the experts who earlier suggested it an easy piece of legislation, might have overstated their case. The less than strong support given from the ultra-conservative “Freedom Caucus” in the House was critical to Paul Ryan’s decision to offer himself up for Speaker (the vast majority have pledged to support him). But the debt ceiling move is complicated by President Obama’s recent rejection of proposed military spending and several other recent positions taken by the Obama White House through regulatory actions, not the least of which are new regulations viewed as particularly onerous to energy companies in many areas of the nation.
It will be harder than expected for Republicans in the House to pass a “clean” piece of legislation without appearing to put up a fight.
Anyone Newsvesting this matter should take note if the number of stories suggesting that a deal might not be reached begin to reach a critical mass before Wednesday. Everyone knows what happened the last time a deal was not reached (downgrades and a rather sever drop in the market). If such a circumstance should present itself again, it would be worth considering buying into a market drop by utilizing the broad market indexes such as the S&P SPDR (SPY). This has yet to become a Newsvesting event. But the number of articles suggesting that increasing the debt ceiling might not be as easy as once thought has ballooned over the last three days.
Wall Street usually doesn’t react until the fog rolls in and the lights are out. Those who are Newsvesting should be prepared ahead just in case.
Newsvesting and Matt Towery both provide observations about news and investments but are in no way meant to provide investment advice. As Matt Towery notes in his book, he only does his “Newsvesting” after consulting a licensed and reputable financial advisor/broker. The information in Newsvesting in no way offers investment advice. If you want to learn the steps to also start “Newsvesting” You can purchase the new book Newsvesting: Use News and Opinion to Grow Your Personal Wealth RIGHT NOW! Just click on the link below and you can start your way towards Newsvesting!