Thoughts on Debt Ceiling and Spending Authority
Aug 23, 2017
Investors Beginning to Focus on Debt Ceiling and Spending Authorization: In the absence of much economic data, it is worth noting the shift in investors’ concerns recently to the upcoming debt ceiling and government funding legislation. Important dates – Congress is scheduled to return to session September 5, appropriations legislation must be passed by September 30 to continue funding the government, and Treasury is likely to exhaust its “extraordinary measures” thus requiring an increase to the debt ceiling by mid-October. A lot of compromise will need to be achieved in a rather short time. The White House has asked for a “clean” debt ceiling increase. A faction of the Republican party prefers to use the debt ceiling to further cut federal spending. And Democrats will have certain agenda items they want to see included to gain their support. Based on previous outcomes, it is reasonable to assume a continuing resolution may be passed by September 30 to continue funding the government at least through the debt ceiling debate, thereby avoiding a shutdown. Investors’ fears are intuitive; Washington has not excelled in compromise in a long time, particularly in the past seven months (see healthcare debate). Going into the discussion, it is important to recognize that 1) Treasury is extremely unlikely to default on its debt (perhaps a delayed payment is possible, but certainly not an outright default), and 2) government shutdowns have historically not had lasting economic effects.