Today Washington has been an absolute madhouse, with rumors, proposals, and counter-proposals swirling around like swarms of biting insects. {Washington Post}
N.Y. TIMES
With the federal government on the brink of a default, a House Republican effort to end the shutdown and extend the Treasury’s borrowing authority collapsed Tuesday night as a major credit agency warned that the United States was on the verge of a costly ratings downgrade.
After the failure of the House Republican leadership to find enough support for its latest proposal to end the fiscal crisis, the Senate’s Democratic and Republican leaders immediately restarted negotiations to find a bipartisan path forward.With so little time left, chances rose that a resolution would not be approved by Congress and sent to President Obama before Thursday, when the government is left with only its cash on hand to pay the nation’s bills.
A day that was supposed to bring Washington to the edge of resolving the fiscal showdown instead seemed to bring chaos and retrenching. And a bitter fight that had begun over stripping money from the president’s signature health care law had essentially descended in the House into one over whether lawmakers and their staff members would pay the full cost of their health insurance premiums, unlike most workers at American companies, and how to restrict the administration from using flexibility to extend the debt limit beyond a fixed deadline.
House speaker, John A. Boehner, Republican of Ohio, and his leadership team failed in repeated, daylong attempts to bring their troops behind any bill that would reopen the government and extend the Treasury’s debt limit on terms significantly reduced from their original push against funding for the health care law. The House’s hard-core conservatives and some more pragmatic Republicans were nearing open revolt, and the leadership was forced twice to back away from proposals it had floated, the second time sending lawmakers home for the night to await a decision on how to proceed Wednesday.
The House setback returned the focus to the Senate, where the leadership had suspended talks after the Senate Republican leadership opted to give the House a chance to produce an alternative to the Senate measure taking shape.
Under the emerging Senate deal, the government would be funded through Jan. 15 and the debt limit extended until Feb. 7. House and Senate negotiators would be required to reach accord on a detailed tax-and-spending blueprint for the next decade by Dec. 13. A proposal to delay the imposition of a tax on medical devices had been dropped from the deal, as had a complicated tax on self-insured unions and businesses participating in the health care exchanges. All that remained for Republicans was language tightening income verification for people seeking subsidies on the insurance exchanges, but that language was still being negotiated.
It remained unclear if the Senate plan could pass the House or even if Mr. Boehner would bring it forward for a vote. The hopes for a resolution by Thursday also appeared to rest with the senators who had begun the failed movement to tie any further government funding to the gutting of the Affordable Care Act: Ted Cruz, Republican of Texas, and Mike Lee, Republican of Utah.
If Mr. Reid and Mr. McConnell reach a final accord, Senate leaders expect to use a parliamentary maneuver that will allow the majority leader to quickly move the deal to the Senate floor on Wednesday. With unanimous consent, a final vote would come the same day. But if Senate hard-liners object, the Senate would have to wait until Friday, then muster 60 votes to cut off debate. Further obstruction would mean the final vote would happen Saturday, when the bill would go back to the House, where it would probably have to pass with overwhelming Democratic support and the votes of a minority of Republicans.
Given the progress that had been made in the Senate, Congressional Democrats and officials at the White House criticized Mr. Boehner’s move on Tuesday as an attempt to sabotage the bipartisan Senate talks as they seemed to be nearing an agreement. Initially, Mr. Boehner proposed a bill to reopen the government until Jan. 15, extend the debt ceiling until Feb. 7, delay a tax on medical devices two years and deny members of Congress, the president, the vice president and White House political appointees taxpayer subsidies to help buy insurance on President Obama’s health insurance exchanges.
By Tuesday afternoon, House Republican leaders were back with a new proposal to fund the government through Dec. 15, extend the debt ceiling into February and deprive not only lawmakers but all their staff members of employer assistance to buy their health care. By extending that provision to staff members, Republican leaders hoped to appeal to its far-right flank, but it angered more moderate Republicans and was not enough for the conservative hard core. Boehner acknowledged “there are a lot of opinions” among his rambunctious members.
Complicating the speaker’s task, Heritage Action, the conservative Heritage Foundation’s political arm, which wields great influence with the most conservative elements of the Republican Party, opposed the plan.
“I think there’s always hope there can be a final package I can vote on, but this is not the one,” said Representative Ted Yoho, Republican of Florida, as he and two other Tea Party conservatives left the speaker’s office.
Republican leaders had initially hoped the loss of members like Mr. Yoho could be made up with support from Democrats. But Democratic leaders made it clear they would offer no assistance. Democrats [opposed a]House proposal that would have forbidden the Treasury to juggle government accounts — so-called extraordinary measures — to meet obligations beyond a debt-ceiling deadline.
In the midst of the turmoil, the credit rating agency Fitch put the United States on a “negative ratings watch,” warning that Congressional intransigence has put the full faith and credit of the government at risk.
The news came as the Treasury Department said it had only about $35 billion in cash on hand. It expects to run out of “extraordinary measures” to keep on paying all of the government’s bills on Thursday, at which point outgoing payments might exceed that cash, plus any revenues, on any day going forward.
As the United States nears default, investors have demanded more compensation for lending to the government, with yields on short-term debt spiking to their highest levels in years.
Fitch warned that Congress has not “raised the federal debt ceiling in a timely manner.” It said it “continues to believe that the debt ceiling will be raised soon,” but that “political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.”
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The crucial fact about the emerging Senate plan is that it fulfills the core Democratic demand that the debt ceiling not be ransomed for policy concessions. Democrats prefer to simply lift the debt ceiling, or abolish it altogether. For the sake of appearance, Republicans have asked to tie policy changes onto the debt-ceiling bill. But Democrats have insisted they won’t pay a ransom: The policy changes must be reciprocal. The Senate compromise accommodates that, by adding on two changes — beefed-up Obamacare income verification and the delay of a small tax — which are both minor in nature and a trade Democrats would have made without a debt-ceiling threat. Attaching mutually acceptable deals onto debt-ceiling hikes is historically normal. Using the debt ceiling as a hostage to force a party to accept policies it doesn’t like is not. [...]
The principle undergirding the emerging Senate bill — ending hostage tactics, and making all deals reciprocal — is unacceptable to House Republicans, who want to preserve debt-ceiling hostage-taking as a form of policy leverage. So, rather than wait for the Senate to act on its own, the House [attempted] to move its own bill, which demands a small ransom: suspending the medical device tax, and eliminating employer health-care subsidies for congressional staff. The ransom is minor, but preserves the principle that the House can use the threat of default to force the president to accede to otherwise unacceptable policy demands, without making any policy concessions of its own.
The frequent GOP claim that Dems “refuse to negotiate” has obscured the true nature of the difference paralyzing the system. It is not over whether to negotiate over spending and debt. It’s an argument over what conditions under which budget negotiations should proceed.
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A possibility is that ...the House [will pass a] bill Obama can’t sign, and the Senate will have passed a bipartisan bill he can sign, forcing Boehner to either give in and pass the Senate bill at the last minute or allow default. Boehner has previously told colleagues he won’t allow default, which would imply he is trying to show his conservative members he’s fighting the good fight before giving in at the last possible moment.
The House’s small-ransom bill has ratcheted its demands way down from its original level. The only point of the demands is to maintain the precedent that the House can hold the debt ceiling hostage. But of course the chaos and frenetic timing of the events serve only to show why it is so crucial that Democrats — or any sane American — not allow this precedent to be enshrined. The white-knuckle terror being inflicted on the world economy is the conservative movement’s vision of how divided government should be conducted from now on. Paying even a tiny ransom now means that debt-ceiling ransoms will continue in perpetuity until one party finally miscalculates and the explosives go off.
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N.Y. TIMES
China has become shrill in its criticism of the fiscal train wreck in the United States, arguing that the answer to a potential government default is to begin creating a “de-Americanized world.” Beijing’s alarm is understandable, given that it is the world’s largest investor in American public debt, with at least $1.3 trillion in holdings.
But China does not have many options beyond wringing its hands. Despite its efforts to steer its economy away from exports and toward domestic demand, China generates billions of dollars of excess cash that it needs to park somewhere. And for all the chaos in Washington, Treasury bonds remain a safer investment than most of the alternatives.
That dependence may help explain the stridency of a recent commentary published by the official Xinhua news agency. It called for the replacement of the dollar as the world’s reserve currency “so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.”
“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about,” the news agency said, “it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.”
Chinese officials made similar noises five years ago, when the United States was being buffeted by a banking crisis. In March 2008, the leader of China’s central bank, Zhou Xiaochuan, proposed creating a new “supersovereign currency” that would diminish the importance of any individual national currency, not least the dollar.
But economists who follow China’s monetary policy say that while Beijing has somewhat diversified its foreign exchange reserves, it continues to rely heavily on Treasury bills and other American government-backed debt.
Part of the problem is the lack of easy alternatives: euro-denominated debt has been hurt by the European Union’s crisis, except in Germany. Analysts estimate that 60 percent of China’s $3.66 trillion in reserves are still in dollar-denominated debt, though the precise numbers are a secret.