Please extend the greeting of your choice to the U.S. Congress, back in “action” today after a long August recess.
This morning Democrats said they would vote for a disaster relief package for victims of Hurricane Harvey if Republicans attached the measure to a three-month extension of the debt-ceiling. If Congress doesn’t raise the ceiling on the amount of debt that the U.S. Treasury can sell, estimates say that the government will not be able to pay at least some of its bills after September 29.
House Speaker Paul Ryan ridiculed the proposal, saying he saw no reason to link the two issues and that Congress should simply pass the disaster relief package without a rider raising the debt ceiling. Ryan’s statement seemed to indicate that the Speaker thought he had enough Republican votes in the House to pass a disaster relief bill. And a few hours later House Republicans passed a $7.85 billion disaster relief bill that is a downpayment on what could rise to become a $120 billion total.
But before you could say, “So the Democrats’ idea of a three-month extension is dead,” President Donald Trump sided with the opposition party at a White House conference with leaders of both parties. Congress should pass a bill raising the debt ceiling so that the government can sell debt through December 15. In addition, the President said, Congress should pass a bill funding government operations through December 15. Without that legislation the Federal government will have to shut down on October 1 when current funding legislation expires.
I’m sure Republican leadership in both the House and the Senate isn’t any too happy with the President right now. A short-term extension would give Democrats more leverage in continuing budget discussions as well as in the debate over immigration and the fate of the 800,000 Dreamers who are now looking at the possibility of deportation within six months.
The bond market today is signaling its relief that a deal may put off an October debt crisis but it is also clearly saying that any short term deal won’t really fix the problem. Today yields on short-term Treasury bills maturing around the October 1 deadline set by Treasury Secretary Steven Mnuchin have plunged (meaning that prices have climbed), but the yields on short-term bills maturing around the December 15 deadline mentioned today have surged (meaning that prices have fallen.)
Today’s chaos has larger and unsettling implications for the ability of Congress to legislate its way through a September schedule that includes hurricane disaster relief, a military spending bill, an extension of the debt ceiling, a budget for the next fiscal year, and a funding bill to keep the government’s doors open.
That would be a very heavy lift even for an experienced political team operating at maximum efficiency. No evidence that one of those exists in present Washington. And lots of evidence that Congress will do all it can to make markets nervous before all this is over.