Neither Party Wants a Debt Deal Any Time Soon
Author: Greg Valliere
January 20, 2023
THE LOOMING DEBT CRISIS could become a major issue for the markets this summer, but it also will be a dominant political theme, as each party sharpens its attacks:
- Democrats will argue that Republicans are willing to shut down the government, upsetting the the markets and even jeopardizing Social Security and Medicare. Why would they want to abandon their assault on what they believe are extreme radical Republicans in the House?
- Republicans will argue that the White House refuses to negotiate, and that Democrats are indifferent to the country’s debt, now over $30 trillion, which may increase the likelihood of intractable inflation. And the GOP will claim that Democrats are itching to raise taxes to pay for the spending binge of recent years.
SO BOTH SIDES ARE CONTENT to play to public opinion for a few more months, carefully watching the polls. We wrote a couple weeks ago that neither side really wants an immigration deal — on that issue as well the parties would prefer to sharpen their message against each other.
THIS IS WHAT HAPPENS when both houses are virtually tied. Perhaps the only way to break the gridlock would be an aggressive intervention by President Biden, but he has been wounded by the inept White House performance on documents found in Biden’s home. Biden’s main rival, House Speaker Kevin McCarthy, is on such a short leash that he won’t even consider a deal with Democrats; that could cost McCarthy his job.
INTO THIS VOID COMES AN ADULT IN THE ROOM, Senate Minority Leader Mitch McConnell, who said yesterday that “America must never default on its debt. It never has, and it never will.” McConnell believes that “we’ll end up in some kind of negotiation with the administration.”
THE ODDS FAVOR that scenario — narrowly. But for now, each party is content to bash the other, while frightening voters and the markets. There’s no rush to deal, none whatsoever.
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