As expected, the House failed to pass a “clean” bill on Tuesday that would have raised the debt ceiling by $2.4 trillion, by a vote of 97-318. In a rare occurrence, but one that perfectly encapsulated the theatrics of this debate, the sponsor of the measure, House Ways and Means Chairman Dave Camp (R-MI) introduced the bill and simultaneously announced his opposition to it, because it failed to include spending cuts to accompany the debt ceiling increase. Notwithstanding the illogical result of an author of a piece of legislation complaining that it lacked certain provisions, the vote was pure political theater intended to provide conservative freshman cover for a later vote to raise the debt ceiling. That said, it is entirely probable that many of these freshman will not be willing to take a “Kerry-esque” “against it, before they were for it” vote, and it is also unclear how many Democrats will be willing to resist the political appeal of letting the vote go down on the lack of tea party support. As we draw closer to the August 2nd date, we should expect more gamesmanship as both sides attempt to extract as much political “juice” from the issue while simultaneously engaging in a game of chicken with dramatic ramifications for the nation.
Evidence of this could be seen in the fact that despite efforts by Camp and others in the Republican leadership to assuage markets that this vote was not indicative of Congressional intent to fail to raise the ceiling, the Dow dropped 280 points the day following the vote. Then on Thursday, Moody‟s Investors Service warned that the country will lose its top credit rating (from Aaa to Aa) if the U.S. defaults on its debt. Even if default wasn‟t to occur, Moody‟s indicated that still might lower its “outlook” rating to negative unless substantial steps are taken in reducing the deficit. While Republicans viewed this announcement as affirmation for spending cuts, Moody‟s analysis was primarily focused on the short-terms risks of failure. Noting that, “the degree of entrenchment into conflicting positions has exceeded expectations” and “heightened polarization over the debt limit has increased the odds of a short-lived default.” Standard & Poor‟s previously downgraded its outlook on the U.S. credit rating to negative in April.
Meanwhile, Vice President‟s closed-door working group of legislators is “making progress,” according to House Speaker John Boehner (R-OH), though it appears that Boehner is now attempting to insert himself directly into the conversation. In a statement on Thursday, Boehner said that “Eric Cantor is doing an excellent job representing us in those talks, but the White House needs to step up.” He called on President Obama to meet with him and other congressional leaders in order to reach an agreement within a month. With the Speaker and the President announcing late on Friday that they will be hitting the links on the 18th of June, perhaps “a 19th hole agreement” can be reached that will put this issue to bed before July.
In other news this past week, while many groups and organizations in the US are criticizing federal financial regulators for their great haste in implementing the Dodd-Frank rules, a European official came out this past week in favor of a speedier execution, so that the U.S. might catch up to its EU counterparts. In doing so, European Commission Michel Barnier also questioned the United States‟ commitment to Basel II, which was passed back in 2006. He believes the U.S. “leaves too much latitude for financial institutions” and allows them to “circumvent globally-agreed principles.”
This past week was relatively light with the Senate in recess but the House in session. Although that schedule flip-flops next week, we continue to anticipate another relatively light week on the Hill and the Administration.