DACA debt ceiling tax reform Trump

Thank God For Harvey? How A Natural Disaster May Have Averted A Fiscal Disaster

Whatever the case, the assumption here is that this will get done come hell or high water (with the latter having already arrived in Texas and the former well on its way between North Korea and Irma).

Ok, so it’s probably worth updating you on the latest chatter re: the debt ceiling.

“Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan are mulling a basic framework to raise the debt ceiling without spending cuts and avert an Oct. 1 shutdown with a short-term spending bill,” Politico reports, citing multiple Republican aides. “But while top Trump officials like Treasury Secretary Steven Mnuchin back a ‘clean’ debt increase, the president himself is mum on the latest strategy.”

There are multiple embedded contingencies here and it looks like DACA might play a role as well – so you can add the “Dreamers” issue to the already fractious backdrop.

Goldman has reduced their subjective odds of a government shutdown to just 15% (from 50% last month), on the assumption that one way or another, Harvey relief is going to be a factor in getting lawmakers to the table.

Meanwhile, WaPo notes that “Democrats will be looking to add on protection for Deferred Action for Childhood Arrival — perhaps to the debt ceiling or alternatively to the funding bill.”

Apparently, Trump’s given up on the wall funding – or at least for now. Here’s Politico again:

The severity of the damage is convincing top White House officials — and, they’re praying, Trump himself — that now is not the time to pick a fight over the president’s proposed border wall with Mexico being funded in a must-pass spending bill. Trump has signaled to his staff that he’d prefer to have the border wall fight later this year, sources familiar with those conversations said.

That’s in part because Trump has a personal interest in Harvey recovery, visiting the region for the second time over the weekend, demanding quick action to rebuild Texas and Louisiana. Republicans are set to approve $7.9 billion in Harvey emergency package as early as this week. The debt limit must be raised by the end of the month and is likely to move in tandem with a spending bill, whether it’s the initial Harvey relief bill or the larger spending bill due by the end of month.

That sets the stage for some kind of awkward compromise between sane members of the GOP and Democrats. One more time, from WaPo:

If Freedom Caucus members and hard-line Republicans in the Senate get neither the wall nor spending cuts, they might opt out of hard votes, leaving GOP leadership to go hat-in-hand to Democrats. Ironically, that may hand House Minority Leader Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) more leverage, which can be turned around to help them achieve protection for DACA participants.

Whatever the case, the assumption here is that this will get done come hell or high water (with the latter having already arrived in Texas and the former well on its way between North Korea and Irma).

Below, find a rundown of analyst opinions as compiled by Bloomberg…

Via Bloomberg

KBW (Brian Gardner)

  • Speculation about possible debt default, government shutdown at month’s end is likely overdone, as KBW sees debt ceiling likely to be raised and shutdown averted, at least until December
  • Efforts to avoid being seen as “petty and dysfunctional” post- Harvey will likely result in passing disaster relief, and short- term spending bill (continuing resolution or CR) that lasts into December, when there may be a “real fight” over government spending, with higher chances of government shutdown

COMPASS POINT (Isaac Boltansky)

  • Fiscal fights likely to be delayed as Hurricane Harvey alters Congressional conversation, lessens likelihood of a shutdown in October
    • Sees border wall debate — which had been a complicating factor before the storm — postponed in favor of Harvey assistance
    • Anticipates likely compromise package with initial round of relief funds, federal funding agreement to mid- December, debt ceiling suspension possibly beyond 2018 midterms
    • Punting debt ceiling far into 2018 would be “welcome sign” for markets
  • Today, will be watching announcement on child immigrants (DACA, due at 11am), “Big Six” tax reform negotiators’ meeting with Trump
    • Also watching: Trump’s Wednesday meeting with Congressional leaders from both parties, Trump remarks in North Dakota about tax reform; North Korea; Hurricane Irma; CFPB director Richard Cordray (who’s likely to depart bureau)

MORGAN STANLEY (Michael Zezas)

  • Shutdown and debt ceiling risk likely “deferred, not deleted” as Congress faces crowded fall agenda that now includes storm relief
  • Market volatility that may have come with debt ceiling, shutdown and border wall debates also likely to be deferred toward year-end
  • Expects temporary extension of government funding combined with disaster funding, raising debt ceiling; that would set up shutdown and/or debt ceiling risks for 4Q, while postponed deliberations on government funding support Morgan Stanley’s “delayed and diluted” tax reform thesis

BARCLAYS (Shawn Golhar)

  • Trump administration, GOP to face “reality of a crowded agenda” as Congress has to pass spending agreement and increase debt limit, while aiming to reform tax code
  • Notes administration also intends to renegotiate NAFTA, reform trade policy and is threatening tariffs and border wall
  • Packed agenda and “bellicose” rhetoric leave “little breathing room” as delays may impact markets

VEDA (Henrietta Treyz)

  • Harvey may help tax reform, as by Veda’s count 6 Freedom Caucus members represent either Texas or Louisiana, another 5 hail from states that have experience with hurricanes and flooding, like the Carolinas and Florida
  • Harvey may prompt those members to loosen “the vice grip” they usually keep on federal spending initiatives, provide some momentum for Republican majority going into rest of the year


  • Sees House as likely to initially pass emergency appropriations bill to provide Harvey funds this week; once that advances to Senate, sees Senate attaching debt ceiling increase as well as ~3-month extension of government funding at current spending levels; sees that legislative package returning to the House for final passage before the end of the month
  • Sees House Speaker Paul Ryan being forced to rely on Democratic votes to pass the combined package; may fail to garner support of at least half of his majority; may face attacks led by Breitbart News
  • While tax reform is shared top priority for White House and congressional Republicans for the rest of 2017, Beacon is still “quite skeptical” will be any more successful than attempt at healthcare reform

COWEN (Chris Krueger, Jaret Seiberg)

  • Notes there are 12 legislative days in September, rest of the year’s policy calendar will be “whipsawed” by DACA, potential unilateral trade action
  • While 2-month CR seems more likely than not, urges caution on assuming Congress, Trump Administration can get through September “drama-free”; long-term debt ceiling extension/suspension may be folded into Harvey package; odds of October shutdown have gone down at expense of December shutdown
  • Separately, notes Congress in coming weeks faces key challenges regarding confirmations, including Randy Quarles at the Fed and Joseph Otting at OCC; tax reform challenges include potential “Roth-ification” of retirement savings (on after-tax basis) to offset tax cuts, cutting mortgage interest deduction

CAPITAL ALPHA (Charles Gabriel, Ian Katz)

  • “Harvey spells r-e-l-i-e-f” as Trump’s expected request for two sequenced Harvey flood aid packages should facilitate temporary FY2018 CR and debt ceiling hike, averting a September shutdown/default
  • Separately, sees Quarles, Otting as both getting through Senate Banking Cmte votes due Sept. 7 with full Republican support
  • Doesn’t like Gary Cohn’s chances of ending up as next Fed chair; notes Trump “dissed” Cohn during Aug. 30 remarks; sees any signs Cohn may be on his way out or losing influence as being seen as bad news by investors

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