Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Why Congress Won't Lift the Debt Ceiling By August 2


The stakes are huge, as everyone knows. So why isn't it going to happen? Here, the four important constituencies in play.

President Obama wants to lift the debt ceiling. So does Speaker of the House John Boehner and Senate Minority Leader Mitch McConnell. The stakes are huge, as everyone knows. So why isn't it going to happen? As we get closer to the deadline, media coverage of the story is finally beginning to lay out the complexities of the situation and why finding a deal that works for all parties will be so difficult. The Wall Street Journal's piece today on the situation is excellent.

Essentially, there are four important constituencies in play:

Ultra-conservative House and Senate Republicans: They hold all the cards. Freshmen Republicans were elected for two reasons, which they campaigned on. One, to stop the agenda of President Obama, which includes repealing the health-care reform act. Two, to cut the nation's debt and deficits. Because I'm a geek about politics and markets, I attended this year's CPAC (Conservative Political Action Conference) since I had a sense that the ideology of ultra conservative activists would be the key driver of politics during this Congressional term. There was a straw poll held during the conference where in addition to selecting a preferred presidential candidate participants were asked ideological questions. Here's the slide in the results talking about how to reduce the national debt:

Conservative activists have spoken loud and clear time and time again. They want to slash spending and taxes. No data will convince them that another path is more advisable. One can argue about whether or not this is good policy, but this is what last November's election was all about.

Something called the "Cut, Cap, and Balance" pledge came out this week where, among other things, signers pledge to not raise the debt ceiling unless a Balanced Budget Amendment is added to the US Constitution. Clearly, this will not happen within the next few weeks, so signers are effectively pledging not to raise the debt ceiling under any circumstances. Every major Republican presidential candidate signed the pledge with the exception of Michelle Bachmann, whose first TV ad pledges not to raise the debt ceiling under any circumstances. Yes, the official platform of the Republican nominee for the presidency is to not raise the debt ceiling.

So far 12 senators and 35 House members have signed the pledge, all Republicans. At the moment the Senate is 53 Democrats and 47 Republicans, while the House is 240 Republicans and 192 Democrats. If all pledge signers live up to their word -- and it'd be foolish to sign a pledge you intend to abandon a few weeks later -- this means that any debt ceiling bill will need the support of at least 15 Democrats in the Senate and 12 (likely way more assuming there are plenty of anti-debt ceiling hikers in the House who just haven't signed the pledge) Democrats in the House. The main conditions laid out by House Republicans so far is that any bill cut the deficit by at least the amount the debt ceiling needs to be raised, and that it not increase revenues from taxes. President Obama, most Democrats, and some Republicans don't want to address the issue before the 2012 elections, meaning any package likely needs to be at least $2 trillion.
< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos