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GOP Nixes New Democratic Move on Debt, With Oct. 18 Deadline Set

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·5 min read
GOP Nixes New Democratic Move on Debt, With Oct. 18 Deadline Set
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(Bloomberg) -- Republicans blocked a Democratic move in the Senate to raise the federal debt limit for the second time in as many days, escalating tensions less than three weeks before the U.S. Treasury potentially runs out of capacity to avert a federal payments default.

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Senate Majority Leader Chuck Schumer tried and failed Tuesday to get unanimous consent in the Senate for raising the debt ceiling with a simple majority vote. Senate GOP leader Mitch McConnell objected, attempting to force Democrats to use an involved parliamentary procedure to raise the federal debt limit on their own and without any Republican assent to consider the move.

Top Democrats rejected pursuing that path, however.

“Going through reconciliation is risky to the country and a non-starter,” Schumer told reporters Tuesday, referring to the budget measure Democrats could use to get around a Republican filibuster. The procedure is a “long and convoluted” approach to boosting the debt limit, he said.

Yellen Letter

The escalating partisan battle was made more serious by Treasury Secretary Janet Yellen’s new timeline -- she warned in a letter to congressional leaders Tuesday that her department will effectively run out of cash around Oct. 18 unless Congress suspends or increases the debt limit.

“Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18,” Yellen said in a letter Tuesday to congressional leaders. Yellen said at a Senate Banking Committee hearing that “catastrophic” results would follow a failure to address the debt limit, including a “financial crisis” and recession.

Yellen’s latest timeframe is somewhat sooner than many on Wall Street anticipated, and her warning intensified signs of financial market concern. Yields on Treasury bills maturing around Oct. 18 rose more than those on other securities. A broader selloff in Treasuries contributed to the biggest slump in equities since May.

House Speaker Nancy Pelosi said her chamber could vote as soon as Tuesday on a new debt-ceiling measure, after a previous bill that twinned a debt-limit suspension with a stopgap spending package to keep the federal government funded past the Oct. 1 start of the new fiscal year was blocked by Republicans in the Senate on Monday.

Reconciliation Option

Before Schumer’s pledge to forgo it, House Majority Leader Steny Hoyer said earlier Tuesday that Democrats “may have to use reconciliation” to address the debt ceiling. Hoyer later tweeted that Democrats are not pursuing the reconciliation option and it is not the best option.

The Senate could approve a standalone debt ceiling increase using the reconciliation method with just Democratic votes in less than two weeks, according to former Senate Budget Committee staff Director Bill Hoagland.

Meantime, JPMorgan Chase & Co., the biggest U.S. lender, is preparing for the possibility of the U.S. hitting its debt limit, Reuters quoted Chief Executive Officer Jamie Dimon saying. A JPMorgan representative said the preparations are in keeping with its usual scenario preparations. Dimon told Reuters he still expects politicians to avert the catastrophic event of a default.

Republicans doubled down on their opposition Tuesday. GOP senators in the Yellen hearing called on Democrats to boost the ceiling on their own, as they are proceeding on their own with a tax and social spending bill of up to $3.5 trillion.

‘Perfectly Clear’

McConnell said on the Senate floor Tuesday that he’s “made it perfectly clear” Republicans wouldn’t back a debt-limit increase given the pending social spending package Democrats are pursuing.

“Republicans are going to be taking a dagger to families and the American people if they keep this up,” Democratic Senator Chris Van Hollen said Tuesday. He predicted the GOP will back down from their filibuster threat and allow a simple majority vote to boost the debt limit.

Democrats including Senate Banking Commitee Chairman Sherrod Brown blasted Republicans for failing to follow the long bipartisan tradition of raising or suspending the debt limit out of recognition that both parties had voted for the policies that produced the borrowing requirements. Federal Reserve Chair Jerome Powell added his voice to those warning about dire consequences of failure to avert a payments default, speaking at Brown’s committee.

The cumbersome parliamentary requirements of the reconciliation measure means Democrats would need to start it soon in order to finish before Oct. 18. Planned House and Senate recesses in October put further pressure on lawmakers.

“The closer to the deadline the process starts, the more likely it is that Republicans would agree to waive some of the required time for debate,” Alec Phillips, an analyst at Goldman Sachs Group Inc., wrote in a note Tuesday. “If so, Democratic leaders seem incentivized to let the clock run down before acting.”

Pelosi told reporters Tuesday, “We have to pass the debt limit.” She underscored, “It’s about paying past bills.” Schumer also continued to insist Democrats won’t allow a default or a closure of the government.

Meantime, Congress also faces a deadline for enacting a stopgap spending bill to keep the federal government funded past the start of the new fiscal year on Oct. 1. The bill Republicans blocked on Monday included both funding to keep the government running until early December and a debt-ceiling suspension until December 2022.

“Sometime today” Democrats will make the determination on “what the best strategy is to move it forward and get it done,” Hoyer said of the continuing resolution that will be needed to keep the government open and avert a shutdown.

Democrats on Tuesday discussed ways to change the debt ceiling in the future, Pelosi said. Those included minting a $1 trillion dollar coin or giving the Treasury the power to raise the ceiling on its own.

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