A couple weeks ago we wrote about the fact that the US is coming up to an unusual of significant econo-political events unlike anything we can recall.
Starting sometime in September, we can expect to see the following:
- A fight over the government's budget, leading to a possible government shutdown.
- A fight over the debt ceiling.
- The beginning of Fed tapering (the reduction of large-scale asset purchases, known as Quantitative Easing)
- A nomination for a Fed Chair to replace Ben Bernanke.
Each one of these could be economically significant to varying degrees. Together they're likely to be very exciting.
Over at POLITICO, Ben White and MJ Lee have a big story up about why this time, Wall Street should be afraid of the fiscal fight.
Of course the street expects that everything will get resolved at the last second (like it always does) but White and Lee argue that this time could be different.
The reasons why: The GOP is even more fractured than it has been in recent fights, and this time the Democrats may go to the mat as well, as they refuse to give an inch. That the Democrats may not be willing to bargain at all over the debt ceiling seems like the big dynamic that makes this time different than those other times.
And even if the two parties find a path past Oct. 1 and avoid a government shutdown, raising the debt ceiling will be no easy task. Republicans have not backed off their mantra of a dollar in spending cuts for every dollar of debt-ceiling increase. But if they pass such a bill out of the House, it is going nowhere in the Senate. Democrats have no appetite for more cuts, given that annual deficits have been sliced in half and the sequester spending cuts are already taking a bite out of economic growth with no compromise on the horizon.
“It’s not negotiable. It should be done,” said Sen. Sherrod Brown (D-Ohio) about raising the debt ceiling. “Business everywhere believes that this is a bad thing for the country. The Republicans, they call themselves the pro-business party. They should act that way.”
The White House is also likely to stick hard to its vow not to negotiate over the debt ceiling.
This is a point that Eurasia Group analyst Sean West made back in mid-July:
Democrats are increasingly convinced that this is the moment to "break the fever" of sequestration and debt ceiling pay-offs. They will attempt to break up the upcoming deadlines by cutting a short-term deal on the 30 September continuing resolution-insisting on a clean debt ceiling increase with no pay-off for Republicans-and then gearing up for battle later in the fall when the short-term CR expires if necessary to get a sequester deal before January. In reality, Democrats would prefer to trade mandatory cuts and other piecemeal fiscal reforms for a sequester offset that can be implemented around the same time as the debt ceiling, without a direct negotiation on the latter issue. But Democrats have less appetite to agree to large-scale reforms amid a declining deficit: If Republicans demand too high a price for the Democrats' key goal of offsetting the sequester, Democrats, are willing to threaten shutdown even though they don't actually want it.
Anyway, lots coming up. Enjoy the rest of your summer.
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