Latest Debt Ceiling Increase Dispute Won't Stop Debt Ceiling From Being Raised On Time
There was a flurry of activity in the media and on Wall Street yesterday after the White House let it be known that it was going to request a $1.2 trillion increase in the federal debt ceiling on Friday.
I received a number of calls from reporters and clients wanting to know if this was just a bureaucratic exercise of the government's responsibilities or a power play by the Obama administration that would end up angering Congress and starting yet another round of hyperbolic and hyperventilating fights over the budget.
Everyone please take a deep breath. This may be fun to talk about but doesn't change the very likely outcome -- an on time increase in the debt ceiling -- in any way.
Here are the basics:
1. To request this increase, the Obama administration is using the procedure agreed to in the Budget Control Act that was enacted in early August. This is the same law that created the anything-super committee that so completely failed to agree on a deficit reduction plan.
2. The debt ceiling increase provisions provided an immediate increase in the government's borrowing limit when the law was signed and a procedure for a second and third increase to be considered later in the year.
3. This procedure allows the president to request the second and third increases when the Treasury estimates the government is within $100 billion of the existing limit.
4. Congress has 15 days from the date of the formal White House request to consider a resolution of disapproval. If that resolution is adopted by both houses and signed by the president, the debt ceiling isn't raised. If it's adopted by both houses but vetoed by the president, a two-thirds vote of both houses is required to prevent the debt ceiling from being raised.
5. That means the debt ceiling is raised if one of three things happens: (1) Congress votes but doesn't adopt a resolution of disapproval, (2) Congress fails to override a veto of a resolution of disapproval, or (3) Congress doesn't consider a resolution of disapproval within the 15-day window provided in the Budget Control Act.
This last possibility is the one that had the media and investor worlds so excited yesterday. The White House let it be known that the formal request will be made this Friday, December 30, and that means that Congress has until
December January 14 to consider a disapproval resolution. But the House is in recess until January 17 and Senate is in pro forma session until January 23. As a result, there may be no way for a resolution to be considered before the 15-day period expires.
There is no practical effect of this situation: As was the case with the second debt ceiling, there's virtually no doubt that a majority of both houses of Congress has no real ability (or perhaps desire) to stop the federal borrowing limit from being raised given the procedure that has to be used. Auctions of Treasuries will not be delayed or canceled and the government's cash flow will not be affected.
The only real questions are political: Will Republicans in the House and Senate will feel as if they have been cheated out of yet another vote against the debt ceiling and, if so, what symbolic thing will they do about it.
One possibility is that they'll do nothing more than try to make an issue about the date of the administration's request. For example, one reporter I spoke with yesterday insisted that the White House could have delayed the request for additional borrowing authority by using some or all of the gimmicks Treasury used in June and July so that Congress could vote on the resolution. He got that from a House Republican he had spoken with earlier.
Another possibility is that the House will shorten its recess so that it can debate and vote on a disapproval resolution within the 15-day window. At least two of the GOP presidential candidates who are also House members -- Michelle Bachmann and Ron Paul, who both have made not increasing the debt ceiling a campaign issue -- no doubt would love the free national publicity the debate would provide for them.
There's also a question about whether the House Republican leadership, which is still has scars or actual open wounds from its maneuvers on the payroll tax extension, might have to allow its tea party wing to vote against a debt ceiling increase if that's what it wants to do.
The far more intriguing discussion is whether the White House timed the announcement to play hardball politics on the budget with congressional Republicans. That would be a continuation of the change in strategy the administration seems to have adopted since the debt ceiling negotiations this past summer. The payroll tax cut extension was the first obvious example; this would be the second.