Congress will need to either hike or suspend the nation’s debt ceiling in February, and so far, senators on both sides of the aisle are predicting this fight will be much less climactic than previous squabbles in 2013 and 2011.
But there are a few reasons that the debt ceiling could again become another game of chicken. Chris Krueger, an analyst at Guggenheim Partners in Washington, has been adamant that it’s the largest potential macro tail risk on the economy coming out of Washington this year.
In a note to clients on Friday, Krueger outlined the three main reasons why it’s time to start worrying about the debt ceiling:
- There’s not a lot of time. The House is only in session for 2.5 days next week, and for only 11 days in February. Treasury Secretary Jack Lew is pushing for a debt-ceiling raise or suspension ahead of Feb. 7, when the last suspension expires. That is almost certainly not going to happen, so the Treasury will need to use so-called “extraordinary measures” to keep borrowing and paying the nation’s bills.
- Krueger says that the House “needs a scalp.” Michael Steel, a spokesman for House Speaker John Boehner, said Wednesday that a so-called “clean” debt-limit increase cannot pass the House. Krueger said that, stemming from the first big debt-ceiling fight in 2011, House Republicans have backed themselves into a corner they have created. They are adamant on some sort of policy exchange for a debt-ceiling increase. The Obama administration has worked to eliminate negotiations around the debt ceiling, and it did so successfully in October.
- Though Boehner has stressed that the nation should not even get close to defaulting on its obligations, Krueger pointed out that Republican leaders were saying two days before an eventual government shutdown in October that there would not be a shutdown. “Yes, Congressional Republican leaders have tighter control over their members this time around, but events can spiral out of control very quickly,” Krueger wrote.
“We do not foresee another fight over defunding ObamaCare, but we would not be surprised to see another fight go down to the wire with another version of a budgetary kick-the-can end result,” Krueger wrote.
” This could well result in fiscal brinksmanship that will make markets nervous, though the end result is likely more of the same D.C. endgame. Washington will continue to kick the can, until the can kicks back.”
House Republicans will plot their strategy on the debt ceiling next week, when they hold their annual retreat in Maryland.
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