Debt Ceiling Drama Isn’t Quite Over Yet
Author: Greg Valliere
June 1, 2023
THE DRAMA NOW SHIFTS to the Senate, where angry opponents of the bill may push for amendments in the next few days, raising this mind-boggling twist: Could Washington still run out of money by the June 5 default deadline?
THERE’S NO QUESTION that proponents of the Kevin McCarthy-Joe Biden deal have the votes to pass it. But in the bizarre world of Senate rules, even one member can object to a bill, tying it up for as long as a week.
ALL EYES WILL BE ON THE NOISY DISSIDENTS, led by Lindsey Graham (R-S.C.) and Rand Paul (R-Ky.). Senator Graham may hold out for more defense spending, and he probably will win an off-the-record assurance from Biden that the Pentagon will get more money, if necessary, during the 2024 fiscal year.
SENATOR PAUL, a persistent irritant even to his GOP colleagues, will hold out for 5% annual spending cuts for the next two years, which has no chance whatsoever. Another objection could come from Sen. Tim Kaine (D-Va.), who wants to strip approval of Joe Manchin’s Mountain Valley Pipeline from the bill.
WHY A DELAY COULD BE SERIOUS: The Treasury’s cash balance fell to just $37.4 billion on Tuesday, according to data published yesterday. Budget experts believe the June 5 “X date” is very real.
IF THERE’S NO SENATE DEAL BY MONDAY, the Treasury Department would have to scramble. A plausible scenario would be for the debt managers to tap into the Social Security Trust Fund or the Highway Trust fund, selling bonds to avoid default and then buying them back once the Senate passes the bill.
WHILE THAT WOULD AVOID DEFAULT, a serious question could arise: would this be the last straw for the credit agencies, which could downgrade U.S. debt ratings? Standard and Poors downgraded U.S. debt in 2011 after passage of a deal to avoid default.
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ON A FINAL NOTE, we’ll be taking some time off, starting tomorrow, thru June 16. We will resume writing on June 19. Thanks as always to all of you, our loyal readers, for your continued support.
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