Debt Ceiling Stalemate Leads to Standstill in Washington, DC

“I think this passes,” Rep. Steve LaTourette (R-Ohio) said on Friday. He was referring to the revised-for-the-umpteenth time plan authored by Speaker John Boehner (R-Ohio). After discussions late into the night on Thursday, Boehner decided to assuage the tea party faction within his House Republican caucus by agreeing to include in his plan to raise the debt ceiling a provision that states that both the House and Senate must pass a Balanced Budget Amendment to the United States constitution before the debt ceiling needs to be raised again in February 2012. Facing a mutiny among his troops, Boehner had no option other than to include this provision. The Boehner plan would only raise the debt ceiling immediately through February 2012, and then have another vote on the topic in an election year.

The House passed the Boehner plan around 6 PM EST on Friday, but the plan will assuredly die in the Senate, where each and every one of the 53 Democrats has pledged to vote against it. Meanwhile, Senate Majority Leader Harry Reid (D-Nevada) is advancing his own plan to raise the debt ceiling. There are strong doubts that Reid’s plan can even pass the Senate, let alone be voted on in the House.

So what will Congress send to President Obama for his signature by August 2, Tuesday? Or will the United States default? Is August 2 the actual date when the U.S. coffers run out of money, or is the real date a few days later? These are the questions that have been consuming Washington, DC, as almost all other political and policy activity has come to a standstill in this town. Even the routine, non-political work of government agencies is being impeded because they simply cannot plan for next week, not knowing whether they will have the funds and the authority to spend any money at all.

The nation waits on its representatives with bated breath.


In Case You Missed It…5 Articles To Read

  1. Financial Times article looks at how ETFs are reflecting global trends: rising commodity prices, Chinese growth, and budding middle class in emerging markets.
  2. General Accounting Office examines what is needed to implement the Volcker Rule .
  3. To bring the debt ceiling debate to a close, one commentary believes the markets will have to move.
  4. CME increases margin requirements on Treasuries in WSJ report
  5. Wall Street Journal explains how farm subsidies may die a natural death


Views From a Freshman Senator

CMC joined with our manufacturing colleagues for a sit-down with Sen. Ron Johnson (R-WI).  The freshman Senator, who is known for upsetting Sen. Russ Feingold in the 2010 election, brings a strong business background to the post.  Very focused on job creation, Sen. Johnson talked about the debt ceiling, environmental regulations, and his legislative efforts to enact a regulatory moratorium.

CMC Meets with IMF Official

CMC met with a senior officer from IMF’s public relations team to discuss issues of global importance in the financial regulatory space. In addition to financial regulation, other topics that were discussed at the meeting included the U.S. debt ceiling and fiscal situation, the Eurozone crisis, commodities prices and the rise of Asian economies.

New Mexico Senate Race

CMC broke bread with Rep. Martin Heinrich (D-NM) and gathered his views on the upcoming election, science and math, energy policy, the debt ceiling, and immigration.  Rep. Heinrich is the current frontrunner to be the Democratic candidate for the open Senate seat in New Mexico.  In a state that trends Democratic in Presidential years and Republican in off years, it is no surprise that many analysts view New Mexico as a state to watch in 2012.

Meet & Greet With Kansas Representative

CMC sat down with Rep. Lynn Jenkins (R-KS) this morning to hear her thoughts on the debt ceiling, tax policy, and international trade opportunities.  With 20 years of experience as a CPA, her voice on the Ways & Means Committee is a powerful one.

What Are They Thinking? The Debt Ceiling Debate.

Few (if any) decisions are made in DC without a real deadline.  The debt ceiling is no different.  After dueling speeches between Obama and Boehner which offered no new insights and weeks of fruitless negotiation, we are left asking what will motivate Congress to act.  Charlie Cook of the National Journal’s Off to the Races column, offers some sound insight.  As a CMC side note, Charlie’s top editor is Jennifer Duffy – some of you may remember her from our 2011 Annual Meeting.

It is increasingly looking like it may take a cataclysmic drop in the financial markets, perhaps triggered by the lowering of the bond rating for the U.S. government, to focus minds on both sides of the aisle long enough to get this debt-ceiling deal done.  It’s unfortunate that the Dow Jones industrial average might have to fall 500 or 1,000 points before many in Congress are willing to even soften their intransigence.  Both sides will have to go along with what many in their bases consider heretical.

So far, investors have handled the ups and downs of the debate with enormous patience, obviously convinced that cooler heads will eventually prevail.  But how close to a meltdown does Washington have to go before investors really start to worry that the conventional wisdom is wrong?

After the House initially voted down the Troubled Asset Relief Program on September 29, 2008, the stock market immediately dropped 777 points—a 7 percent plunge.  Shortly thereafter, the House and Senate passed the bill and President Bush signed it into law.  Perhaps that’s what it will take here.  But the pain of such a market drop would be enormous.  The years of additional work for those hoping to retire, the body blow to the economy, and the likely rise in unemployment resulting from a severely shaken financial system are all unnecessary, yet they look increasingly likely.

Is the dollar showing the initial signs of what is to come?

A bit closer to home, CME raises margins on Treasuries.

If political outcomes are the drivers, it is tough to see who wins this battle.

Christine M. Cochran

President, Commodity Markets Council