It's Time To Freak Out About The Debt Ceiling And A Government Shutdown Again

There is perhaps less than a month to go before Congress needs to raise the nation’s debt ceiling. And with no clear strategy going forward, the freak out has begun.

Congressional leaders and members of the Obama administration are throwing out heated, partisan-based tough talk in both directions.

Congress has to deal with both budget issues of averting a government shutdown by Sept. 30 and hiking the nation’s borrowing limit by mid-October, and both don’t appear to be close to resolution.

At the heart of the fight are Republican demands to “defund” and delay the Affordable Care Act. According to Politico, about 30 House Republicans have signaled that they won’t vote for a bill that funds the government if it includes funding for Obamacare.

Republicans’ strategy revolves around leadership convincing the rank-and-file members that the debt ceiling is a fight that earns them more leverage than one over government funding.

One prospect, according to Politico, is a vote soon on the debt ceiling — so leadership can show the conservative caucus that it is “serious” about using the debt ceiling for leverage on Obamacare. Right now, rank-and-file members are sceptical that leadership is serious. And they think if they give in on government funding, leadership will also cave on the debt ceiling.

The House bill to hike the debt ceiling would include “goodies” — construction of the Keystone XL pipeline, entitlement reform and principles for tax reform, to name a few.

The problem: There is no chance that kind of bill passes the Senate, and no chance that President Barack Obama would sign it into law. Realistically, that kind of bill doesn’t get us anywhere closer to a debt-ceiling hike.

But it shift the onus away from House Speaker John Boehner and other House GOP leaders, and put it on Senate Majority Leader Harry Reid and Obama. And it would figure to maximise Republicans’ leverage on other cuts.

Meanwhile, the Obama administration has spent the past few days stepping up its warnings about the debt ceiling, and repeating the line that Obama will not negotiate over the debt ceiling. On Sunday, Gene Sperling, the director of the National Economic Council at the White House, said that businesses saw a consumer-confidence hit from the 2011 debt ceiling fight that was comparable to disastrous events like “Pearl Harbor or 9/11.

On Monday, Obama quickly pivoted from remarks on the morning’s Navy Yard massacre to slam the GOP over the possibility of “self-inflicted wounds” on the continuing-resolution bill and debt ceiling debate.

And on Tuesday, Treasury Secretary Jack Lew railed against Republicans during a speech before The Economic Club in Washington.

“We cannot afford for Congress to gamble with the full faith and credit of the United States of America. At the same time, we should never be put in a position where we have to pick which commitments our nation should meet,” Lew said.

“How can the United States choose whether to send Social Security checks to seniors or pay benefits to our veterans? How can the United States choose whether to provide children with food assistance or meet our obligations to Medicare providers?”

In a research note Tuesday morning, Potomac Research Group’s Greg Valliere put the odds of a Treasury debt default at just 5%. But he put the odds of a lesser “fiasco” — a situation in which the Treasury could pay some but not all government obligations — at 55%.

“The key for us is cutting through the nasty background noise and determining whether the markets have to worry about a genuine budget crisis,” Valliere wrote.

“We think the answer is yes.”

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