Support the Wall Street Examiner! Choose your level of support to receive a free proprietary report as my thanks. Click the button below to see your options. Become a Patron!

Republicans to lower the cost of raising the debt ceiling – Sober Look

This is a syndicated repost courtesy of Sober Look. To view original, click here. Reposted with permission.

In all likelihood the US debt ceiling will need to be raised no later than this coming March. The question now is whether we are going to see a repeat of last October’s game of chicken. According to Deutsche Bank, the US sovereign CDS spread has stabilized, with market participants not anticipating a major disruption (note that US CDS is fairly illiquid with “lumpy” trading activity).

Source: DB

The showdown in October, followed by the ugly rollout of the ACA Health Insurance Marketplace, has changed the political landscape. As a result, the Republicans’ debt limit demands may have shifted away from the original “dollar-for-dollar” spending cuts requirement (the so-called “Boehner Rule” ). And the new ask may be considerably smaller.

The Hill: – Mark McKinnon of Hill and Knowlton Strategies said the “equation is pretty clear.”

“When Republicans screw with the debt ceiling and threaten a government shutdown, their unfavorable ratings go up. When they talk about Obamacare, Democrats’ unfavorables go up,” he said.

The GOP demands are likely to be small, a former top GOP aide now on K Street said. That’s because conservative lawmakers and Republicans feeling primary heat will be unlikely to back any debt-limit boost,meaning House Republicans will probably need some Democrats to come to their side.

“Members are going to be very close to their primaries by the time they vote on something in mid-to-late February,” the former aide said. “Anyone voting for that who has a contested primary will be in trouble. Meaning, leadership will need a healthy number of Dem votes….[so] it has to be very small ball.”

“Most Republicans see that the shutdown was a mistake, and that there is more pragmatism in dealing with the debt ceiling,” said strategist Ron Bonjean.

What will the Republicans ask for in return for the debt ceiling increase? Here are some thoughts from Goldman’s Alec Phillips:

GS: – House Budget Committee Chairman Paul Ryan (R-WI) has said “we don’t want nothing out of this debt limit…we’re going to decide what it is we can accomplish out of this debt limit fight.“

Of course, doing “something” rather than “nothing” as part of the next debt limit debate also implies that Republicans may not be setting their sights particularly high. For example, Rep. Ryan raised approval of the Keystone XL pipeline as something Republicans might demand in return for the next increase. Alternatively, it would not be surprising to see Republicans push for an incremental change to the Affordable Care Act (ACA, or “Obamacare”) such as waiving the individual mandate penalties for 2014. House Republicans will hold their annual off-site meeting at the end of January to map out their agenda for the coming year, and is likely to provide clues on how the next debt limit increase will be approached.

SoberLook.com

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.