Debt Ceiling Battle Is Nearer And More Dangerous Than We Thought

The debt ceiling battle was expected to be waged in September or, perhaps, even October, giving the GOP breathing room to work on the AHCA and tax reform before then. But last week we learned that the debt ceiling will be breached far earlier than anticipated.

At a House Budget Committee hearing last week, OMB Director Mick Mulvaney said that "Secondly, regarding the timing [of when the debt ceiling would be breached], my understanding is that the receipts, currently, are coming in a little bit slower than expected and you may soon hear from Mr. Mnuchin regarding a change in the date." Treasury Secretary Mnuchin had indicated as much in his own testimony the day before when he said, "I urge you to raise the debt limit before you leave for summer", meaning the August recess. That leaves only about two months for Republicans to come to grips with the AHCA, tax reform, and the debt ceiling before leaving Washington in August. And, upon their return, they will be confronted by the 2018 budget battle. That's quite a plateful for a group that has shown it is sharply divided and finds it difficult to reach consensus.

The situation for Republicans is compounded not only by the ongoing distraction of the Russian investigation but also by what has now become the all to familiar infighting within the Trump administration itself. Mnuchin has publicly stated that he would prefer a "clean" debt ceiling bill that has no additional conditions attached. On the other hand, Mulvaney, as well as some members of the Freedom Caucus, would prefer to attach conditions that address spending and borrowing reforms. Mulvaney has said that he would "like to see things attached to it that drive spending reforms and debt reforms in the future." While Mulvaney made it clear that missing an interest payment was out of the question, it was "open for discussion" whether other missed payments would constitute default, essentially setting the stage for another government shutdown.

Whatever Republicans decide to do, they will need Democratic votes in the Senate, and possibly even, again, in the House, to raise the debt ceiling. With a White House distracted by the Russian investigation that is quickly reaching deeper into the White House and closer to the President and an angry and isolated Trump, it is quite possible that the administration would try to ram a "dirty" debt ceiling bill down the Democrats' throats or, in an even more unimaginable scenario, an angry Trump refusing to sign a "clean" bill, both of which will significantly raise the possibility of a missed interest payment and a real default.

All this will make for an interesting month of July.