The can has been kicked on the debt ceiling (see here)
Updated with the latest headlines:
- HOUSE PASSES FIRST HARVEY ASSISTANCE PACKAGE OF $7.85B
- HOUSE PASSES BILL TO FUND FIRST TRANCHE OF HURRICANE HARVEY AID
Now we’ll see if the Senate moves to attach the debt ceiling to the bill.
JUST IN: House passes bill to provide $7.85 billion in emergency funding for Harvey recovery by vote of 419-3 pic.twitter.com/IXn7hG6bxP
— NBC News (@NBCNews) September 6, 2017
With FEMA expected to run out of money by Friday and as Hurricane Irma barrels towards Florida, the clock is ticking for U.S. lawmakers.
Faced with a dizzying array of issues that includes the debt ceiling and a CR, Congress needs to act now or risk being blamed for dithering in the face of twin natural disasters.
Of course the default option (pun fully intended) is to tie to the debt ceiling to disaster relief. That’s a shameless end-around in terms of what it says about lawmakers’ inability to get anything done in the absence of a catastrophe, but at this point, markets will take what they can get. Yesterday’s 4-week bill auction proves how nervous folks are getting.
“The latest four-week bill auction was arguably the scariest since the lead-up to the 2008 crisis, underscoring just how concerned investors are that President Donald Trump and Congress will fail to resolve cleanly the regular debt-ceiling jeopardy that the U.S. seems locked into,” Bloomberg’s Garfield Reynolds wrote overnight, adding that “even in 2013, when the battle between President Barrack Obama and Republican lawmakers led to a partial government shutdown, 4–week bill rates at auction only got as close as 3 bps below 2-yr yields.”
Well now, Republicans are apparently going to try and simply suspend the debt limit altogether. “House Republicans are working to advance emergency funds for Hurricane Harvey this week while Senate GOP leaders may add a debt limit suspension to the measure when it reaches their chamber,” the ubiquitous “people familiar with the discussions” tell Bloomberg.
Still, the outcome here is far from certain even as the outcome of Hurricane Harvey is in fact very certain given the fact that it’s already happened. So you know, there’s that – and it’s something Congress might want to consider as they wrangle over political points.
Meanwhile, Goldman is out with their latest take on all of this. The bank’s view is that while the near-term risks (so, the tail risks) have been reduced thanks to the sheer urgency of the situation, the medium-term risks have now grown.
“Some of the near-term fiscal deadlines, like the debt limit, are likely to be addressed as part of hurricane relief, which should reduce the perceived level of risk in financial markets regarding these upcoming deadlines,” Goldman writes, in a note out this morning. “At the same time, the focus on hurricane relief could present additional obstacles for tax reform while slightly boosting the prospects for passage of new infrastructure financing tools,” the bank continues, before cautioning that “we do not expect either of these to be enacted before year-end [as] tax reform has only a slightly better than even chance of enactment in 2018 and a shift in attention toward other issues such as hurricane relief could reduce the probability further.”
Here’s a bit more color on the FEMA situation and relief funding more generally:
Relief funding often passes soon after a major storm hits; it took Congress only three days after Hurricane Katrina to make an initial appropriation of funds, for example. This is partly out of necessity, as disaster relief funds start being drawn quickly, as shown in the left panel of Exhibit 3. However, while an initial round of funds is often approved quickly, the full extent of federal assistance can take several rounds of legislation, often spread over several years. The right panel of Exhibit 3 shows the cumulative resources appropriated to the Federal Emergency Management Agency (FEMA) for Hurricanes Katrina, Rita, and Wilma, which occurred in 2005, and the amounts spent out of those appropriations. All told, Congress enacted at least 9 bills with Katrina-related funding over the five years following Katrina. The upshot is that, while Congress often acts quickly on initial funding, additional installments take time as does the actual spending that occurs as a result of these funds.
So there will be more fights over additional tranches of disaster relief, and lawmakers on both sides of the aisle will almost invariably use that relief as leverage in future negotiations over the spending authority, the border wall, and yes, even DACA.
Just to drive the point home, we’ll leave you with a Venn diagram from Goldman because if there’s anything that screams “this is FUBAR!” it’s a Venn diagram.