GOP Senators Grumble Over McConnell-Brokered Debt Deal

GOP Senators Grumble Over McConnell-Brokered Debt Deal

Update (1440ET): According to The Hill, several Senate Republicans aren’t exactly thrilled with the debit limit deal brokered by GOP leader Mitch McConnell (R-KY) and Senate Majority Leader Charles Schumer (D-NY) – arguing that the Republicans gave Democrats and easy way out. 

Several Senate Republican sources said members of their caucus were “surprised and disappointed” when McConnell unveiled the parameters of the deal with Schumer on Wednesday.

One GOP senator said “you could hear a pin drop” when McConnell shared the details of his plan to allow Democrats to raise the debt ceiling to “a fixed number” without having to undergo the arduous process of amending the 2022 budget resolution and holding multiple time-consuming vote-a-ramas on the Senate floor. -The Hill

According to Sen. Kevin Cramer (R-ND), some of his GOP colleagues had whiplash after 46 Senate Republicans signed an August letter warning Schumer that they “will not vote to increase the debt ceiling, whether that increase comes through a stand-alone bill, a continuing resolution, or any other vehicle.”

“I’m not surprised that they are a little surprised and disappointed, because of course 46 Republicans signed a letter saying they wouldn’t vote for an increase,” said Cramer, adding “I think they feel like maybe we could have pushed it a little longer.

“The problem is the Republican members feel like we’re blinking and blinking a little earlier than might be necessary,” he continued, adding that the upcoming Columbus Day recess slated to begin this weekend “probably entered into the calculation.”

“It’s not insignificant because people have plans and all that but plans aside, your plans to go on a CODEL [congressional delegation trip] are not the highest priority, the government is,” Cramer said. “I think some people wanted to go closer [to the deadline] and feel like we blinked too soon.”

The biggest downside of the deal, in the view of these disappointed Republicans, is that the their conference will divide over a procedural vote on bringing a two-month extension of the debt limit to the floor for an up-or-down vote.

Republicans have said for months that they would not provide any assistance to Democrats in raising the debt limit, especially since Democrats are working on a $3.5 trillion human infrastructure package that would raise taxes by hundreds of billions of dollars.

But now they face the prospect of having to vote on a cloture motion to bypass a filibuster so that Democrats can pass the short-term debt limit increase with a simple-majority vote.

At least 10 Republicans need to vote for the procedural motion to pave the way for legislation that would raise the debt limit by $480 billion, which is enough to cover the U.S. government’s financial obligations until Jan. 3. -The Hill

According to the report, it appeared as though McConnell is facing a tough time rounding up enough GOP votes to bypass a filibuster and allow the two-month debt limit increase proceed to the floor – after which Democrats would then pass it on their own.

Several Republican Senators are still on the fence – which could complicate matters. They include Sens. John Thune of SD and Roy Blunt of MO.

That said, National Republican Senatorial Committee Chairman Rick Scott (R-FL) said he expects there will be a 60-vote threshold for advancing the debt deal.

“There’s going to be a cloture vote,” he said.

*  *  *

Update (1312ET): According to the NYT’s Manu Raju, the debt-ceiling deal might be hitting a snag: many GOP senators don’t want to vote for it, meaning McConnell needs to secure at least 10 GOP votes to pass the bill over a GOP filibuster.

* * *

Update (1300ET): As the Democratic leadership scrambles to get the short-term debt-ceiling deal passed, the Democratic leadership is ramping up its criticisms of Minority Leader Mitch McConnell, as one might expect.

Some more details about the new deal: after passing the Senate via a series of likely unanimous votes, the amended bill must also pass the House, which is in recess.

Speaking Thursday on the Senate floor, McConnell said “the pathway our Democratic colleagues have accepted will spare the American people any near term crisis.” The deal also means “there’ll be no question they’ll have plenty of time” to use the reconciliation process to approve a long-term increase.

* * *

Update (1140ET): Fox News’ senior Hill correspondent and seasoned political reporter Chad Pergram shared some new details about the debt-ceiling deal. The updated bill  (which is technically an amendment) doesn’t mention a date and solely authorizes the $480 billion needed for the Treasury to pay debts coming due between now and early December.

But Pergram’s report also shared some new details suggesting that the margin between the “drop dead” date and actual default might be thinner than previously believed.

According to Pergram’s sources, the Treasury started using cash from emergency accounts over the summer, and the deal doesn’t include any additional funding to replenish these accounts.

That could contribute to the perception that Dec. 3 truly is a “hard” deadline, and that the closer we get to it without a long-term deal, the greater the risk to the market.

* * *

Update (1125ET): As we await a Senate vote on the short-term debt ceiling deal, Goldman’s political analyst Alec Philips has just chimed in with a brief note to clients, advising that the $480 billion debt-ceiling increase was larger than he had anticipated, meaning that the real deadline for a more long-term deal (or at the very least another can-kick) is probably “somewhat later than Dec. 3”.

Media reports indicate that Senate leaders have struck a deal to raise the debt ceiling by $480bn (i.e., to $28.88 trillion). This is intended to carry the Treasury to December 3, at which point an additional debt limit increase or suspension would be required. The amount is higher than we would have anticipated the Treasury would need to get to that date, so there appears to be a good chance that the actual deadline for the next increase will come somewhat later than Dec. 3. That said, it is probably not sufficient to last past the end of the year, so it appears likely that Congress will need to address the issue in December as expected, either as part of the next reconciliation bill, a standalone bill, or part of a spending package for FY22 to extend spending authority past the current expiration, which Congress also set at Dec. 3 when it passed its continuing resolution on Sep. 30.

Meanwhile, the T-bills market responded to news of the deal by shifting the “kink” in the curve out to December.

* * *

Update (1115ET): Cogs are already turning to tee up a vote on the short-term debt deal on Thursday.

Of course, as part of the deal, GOP senators will vote to raise the debt limit, something that McConnell had initially tried to avoid by pushing to force the Democrats to use reconciliation, a process that could have allowed them to bypass a GOP filibuster, but Dems – including President Biden – complained doing so would be unworkable and complex.

* * *

Update (1020ET): Following reports earlier this morning about a short-term deal to suspend America’s debt ceiling, Senate Majority Leader Chuck Schumer was on the tape just a few minutes ago confirming that a short-term deal has indeed been reached, and that he hopes the Senate will vote on the measure Thursday.

“I have some good news…we’ve reached agreement to extend the debt ceiling through early December,” Schumer said during opening remarks on the Senate floor.

US stocks celebrated the headline by sending the S&P 500 and Dow surging past key technical levels, as we pointed out. 

Punchbowl News’ Jake Sherman reports that the deal will raise the debt limit by $480 billion – the figure that Treasury says is required – to extend the deadline until Dec. 3, giving the Dems’ a little bit of wiggle room to continue their divisive, bitter factional battle over President Biden’s domestic agenda, which includes an infrastructure bill and an even larger expansion of the social safety net.

The Dec. 3 deadline lines up with the short-term extension of government spending signed by Biden a week ago.

Minority Leader Mitch McConnell first offered the deal on Wednesday and leaders negotiated the details into Thursday. Defying expectations, the deal – which is really just a short-term can-kick – comes more than a week before the Oct. 18 “drop dead” date quoted by Treasury Sec. Janet Yellen (which is really just a point in a range that could be days or weeks, since the Treasury can’t say exactly when it would run out of money).

While the market celebrated, White House reporters criticized the deal, with one claiming it’s such a weak can-kick that it’s “not even a band-aid…it’s like, the scrap of Kleenex that you found lying around that you have to use…” The criticism lined up with an analysis by Goldman strategists.

Another reporter noted that the early December deadline could create even more problems for Democrats, since they have other important issues and deadlines coming up in December.

As we reported earlier, Goldman’s top political strategist Alec Phillips published a note to clients advising that McConnell’s short-term offer likely wouldn’t be that attractive to Democrats.

* * *

Following negotiations that stretched late into Wednesday evening, Democrats and Republicans have reportedly forged a compromise deal on a short-term increase in the the debt ceiling which will avoid default, but as Bloomberg notes, “threatens to exacerbate year-end clashes over trillions in government spending.”

In moving forward, Democrats appear to be on the verge of accepting a proposal from GOP leader Sen. Mitch McConnell (R-KY) which would raise the debt limit by a specific amount – enough to move things into December, when Congress will have to vote again to avoid a default.

While the details aren’t totally clear, McConnell’s offer was to allow a vote on extending the debt limit at a fixed collar amount – which Goldman’s Alec Phillips expects a number on over the next day or so.

We’re making good progress,” Senate Majority Leader Chuck Schumer said in early Thursday morning comments from the Senate floor, adding “we hope to have agreement tomorrow morning,” adding that the Senate would come back into session at 10 a.m. Thursday.

That said, this is classic can-kicking which will have consequences down the road, as Democrats will likely attempt to move forward with their massive tax and spending package and separate infrastructure bill while at the same time funding the government to avoid yet another potential shutdown after December 3.

News of a possible debt-ceiling accord stoked the biggest positive turnaround in the equity market in more than seven months, as the S&P 500 Index closed up 0.4% after tumbling earlier. In the bond market, traders bid back up the prices of Treasuries set to mature in the window around a potential default. Investors then moved on to gauge which securities may now be most at risk of a missed or delayed payment under the new congressional timeframe. -Bloomberg

Treasury Secretary Janet Yellen has warned that the US would likely default after October 18 without congressional action. At present, the current debt limit is $28.4 trillion, while the Treasury reported that it had $343 billion in combined extraordinary measures and cash on hand.

As an approximation, during the period from Sep. 29 to Dec. 3, 2019, debt subject to limit (this includes marketable and non-marketable debt) increased by $356bn and the cash balance declined by $50bn, suggesting that the Treasury would use around $400bn in borrowing capacity by early December if cash flows are similar this year. Since the Treasury still had more than $300bn in room under the debt limit at the end of September, a debt limit increase to only $28.5-$28.6 trillion might be sufficient to accomplish the intent of the agreement, but the Treasury will be the final word on this and the amount will depend on expected cash flows this year. -Goldman Sachs

And while a fixed dollar amount (vs. a calendar-based solution) injects a bit of uncertainty as to when exactly the next deadline will hit, the debt deal alleviates concerns which were beginning to reverberate throughout the investment community. Earlier this week, McConnell sidestepped a question over whether any major banks or wall street titans had contacted him over the debt ceiling fight.

It was thought that the investment community would hammer Washington if lawmakers bumbled into a debt ceiling crisis. 

Worry started to permeate Washington that rating agencies could downgrade the creditworthiness of the U.S. before Oct. 18 – the deadline when Treasury says the U.S. will run out of cash. –Fox News

Senate Democrats have considered the debt deal a victory –  with Sen. Elizabeth Warren (D-MA) exclaiming on Wednesday that “McConnell caved,” adding “And now we’re going to spend our time doing child care, health care, and fighting climate change.”

From here, the focus will undoubtedly return to negotiations over Biden’s fiscal agenda – and in particular, the stalemate within the Democratic party between Senate moderates Joe Manchin (WV) and Kyrsten Sinema (AZ), who have vowed to sink any reconciliation plan that exceeds $1.5 trillion, and House progressives, who will likewise tank the $1.2 trillion bipartisan infrastructure deal unless Manchin and Sinema bend the knee.

Assuming that drags into December, expect fireworks into the end of the year.

Tyler Durden
Thu, 10/07/2021 – 14:41

Read the full post at Zerohedge.

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