Congress has 12 working days to avoid an economic disaster — and there’s good reason to panic

  • paul ryan mitch mcconnell
    House Speaker Paul Ryan
    and Senate Majority leader Mitch McConnell

    Mark Makela/Reuters

    Congress has 12 working days to raise the nation’s
    debt ceiling when it returns in September.

  • Failure ot raise the debt limit would cause severe
    economic and political consequences.
  • Negotiations have been sluggish, with one Democratic
    aide saying there are currently “no talks” ongoing.

Congress, in the midst of a month-long August recess,
faces a massive policy threat when lawmakers return to
Washington next month.

By the end of September, Congress must approve legislation to
raise the nation’s debt ceiling — or risk a goal economy
disaster. And it already sounds like the attempts at a compromise
aren’t going well.

The Treasury Department says the debt ceiling, a statutory limit
of outstanding debt obligations that the federal government can
hold, must be raised by September 29. That gives Congress 12
working days to pass legislation to get to President Donald
Trump’s desk.

The Congressional Budget Office puts the deadline slightly later
in mid-October.

If breached, it could lead to
disastrous consequences for the federal government, the
US economy, and the global financial system. If the debt ceiling is
not raised
, the federal government would lose the ability to
pay bills it already owes in the form of US Treasury bills and
could lead the US to default on some of that debt.

The possible fallout from a default, according to a study by the
Treasury Department, would include a meltdown in the stock
and bond markets, a downgrade of the US’s credit rating,
which would increase the government’s borrowing costs, and the
undermining of the full faith and credit of the country.

Despite potentially dire consequences, there is confidence
but no guarantee that factions in Congress, with a variety of
competing interests, will be able to come together on a deal to
raise the limit.

Currently, the two sides do not appear to be close on a

There are no talks going on right now,” one senior
Democratic congressional aide told Business Insider.

Despite this, there is hope that the two sides will be
able to avoid the worst case scenario.

“I think we will avoid a default,” one Republican aide told
Business Insider. “I think we might have one attempt that fails
and then we have to come back and do something else.”

A similar sentiment was expressed by outside analysts and

“We think most policymakers are aware of the severe political and
economic consequences of a failure to raise the debt limit. But
September could be an anxious month for market
participants,” Nancy Vanden Houten, a senior economist
at Oxford Economics, wrote in a note to clients this
 “There are just 12 full days on the legislative
calendar, and there is no clear legislative path as of yet for a
debt limit hike.”

Clean or dirty?

The biggest fork in the road for the debt ceiling comes over
whether to pass a “clean” increase, a move favored by the Trump
administration, many Republicans, and some Democrats, but opposed
by many conservatives. A so-called clean increase would either
suspend the debt limit for a certain time period or increase
it to a set amount of debt.

Democrats favored “clean” hikes throughout the Obama
administration, and Democratic leaders came out for a clean hike
in June.

Republicans, on the other hand, consistently demanded spending
cuts or other reforms to slow debt accumulation throughout the
Obama-era debt ceiling fights. And many conservative members
still expect those measures to be included in any limit increase

“Our nation’s structural deficit is driven by historically
irresponsible levels of federal spending,” said a statement from
Heritage Action, the political arm of the Heritage Foundation.
“Any increase in our nation’s debt ceiling should be paired with
serious spending reforms that begin reducing federal spending in
real, meaningful ways. Congress cannot simply kick the can down
the road to the next generation.”

That presents significant complications for
congressional Republican leadership.

Any bill would need 60 votes in the Senate, meaning eight
Democrats would have to get on board if every Republican supports
the legislation. Since spending cuts likely represent a poison
pill for Democrats, a clean bill could be the only thing that
passes in the upper chamber.

On the other hand, losing conservative members in the House by
stripping out spending cuts could make it difficult for it to get
through that body.

Early signs have suggested that the GOP leadership
tandem House Speaker Paul Ryan and Senate Majority Leader
Mitch McConnell will propose a clean hike for debt ceiling,
hoping to win over some Democrats even as they will likely
lose the far-right flank of their own party.

That path, however, would be fraught with political

Earlier this week,
Matt Fuller at HuffPost reported
that many House
conservatives are close to rebelling against Ryan if he
brought forth a “clean” bill.

One Republican in the House
told Fuller that if Ryan attempts
to go that route, “it
becomes the start of the end for the Ryan speakership.” And
several other conservatives members said they wanted to see
serious efforts to deal with debt accumulation in
the legislation.

Mark Meadows
Rep. Mark

Mark Wilson/Getty

There were some promising signs toward compromise last week
when Rep. Mark Meadows, head of the conservative House
Freedom Caucus, appeared to slightly soften his stance on
including spending cuts in the debt ceiling package.

I don’t believe we should play around with the full faith
and credit of our country — I’m bullish on getting it
Meadows told Bloomberg

But the Freedom Caucus took an official position in May that
they would not support a limit increase without policy
concessions. Meadows told HuffPost that he proposed several
items for potential inclusion to GOP leadership.

A source close to the House Freedom Caucus told Business
Insider the approach that is “gaining a bit of steam” is to write
a law to formalize Trump’s executive order that for every one
regulation added, there must be two repealed.

“A simple, clean raising is not something our members are
going to be able to get behind,” the source said. “And keep in
mind, that for the last eight years Republicans have criticized
Democrats for clean increases for the debt ceiling. This is
something from across the conference, not just the
super-conservatives, we’ve taken issue with.”

Any attempt at a clean hike would lose the support of the
Freedom Caucus, said the source. There are roughly three dozen
members in the Caucus.

On the Senate side, negotiations appear equally far apart.

Treasury Secretary Steve Mnuchin met with both McConnell and
Minority Leader Chuck Schumer prior to the recess, and the two
sides were unable to approach an agreement.

According to Ben White at Politico
, Schumer was hesitant to
perform the political heavily lifting with a clean debt
ceiling raise because of the coming Republican effort on tax
reform. The party’s tax plan, set to be opposed by Democrats in
large numbers, would likely contribute to the deficit. Some
Democrats have pushed for getting something in return for a debt
ceiling hike, like guaranteeing key payments for insurers under
the Affordable Care Act.

Additionally, some Republican senators are skeptical about any
clean raise.

If there’s ever a good example of kicking the can down the
road, it is continually raising the debt ceiling and not dealing
with the cause of the debt,” Steve Daines, a GOP
senator from Montana,
told Politico
. “So it concerns me greatly that it’ll just be
another punt if we don’t do anything, at least some structural

In the end, however, most strategists expect that a clean
raise with a combination

Michael Steele, a Republican strategist at Hamilton
Place Strategies and press secretary for former House Speaker
John Boehner, said that the importance of raising the debt
ceiling will probably win out.

“At the end of the day there will likely be a bipartisan
deal to raise the debt ceiling without much drama,” Steele told
Business Insider.

mcconnell trump paul ryanEvan
Vucci/AP Images

The Trump factor

Business Insider’s Akin Oyedele wrote last week
, Wall
Street and investors are starting to get nervous about a
potential default. 

And another factor that could complicate the process is
Trump and his administration, which until last week was split on
how it approached the issue.

Mnuchin favors a clean increase. But Mick Mulvaney, the director
of the Office of Management and Budget and former
member of the House Freedom Caucus, advocated for spending
reforms to be attached. Other administration officials were
suggesting cuts were on the table.

finally ceded the argument publicly
, telling reporters that
the Treasury secretary was the point person on the
negotiations and that he favored a quick resolution to the issue.

But even with the late unification on strategy, the
president could still pose a threat to the
nascent negotiations. Trump’s habit for going off script and
accepting unorthodox policy proposals could undermine any
potential agreement.

With President Trump, debt ceiling options like
Platinum Coin and the
14th Amendment — while unlikely — are now at least a
possibility,” said Chris Kruger, an analyst at Cowen Washington
Research Group wrote ina recent note to clients.

“You also have Twitter risk, Trump’s personal/business
history with debt, and his comments during the election about
restructuring the nation’s debt (hair-cutting Treasuries?) that
combine to make this a volatile DC-created tail risk,” he

national debt clockJustin
Sullivan/Getty Images

Trump’s relationship with top Republicans has become
strained amid the failed healthcare

Trump and his
aides are openly attacking
McConnell on Twitter for the
healthcare failure.

And House members were irked by the president calling

the politically unpopular bill
passed “mean.” 

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