Democrats betting Republicans will agree to raise the debt limit

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Democrats betting Republicans will agree to raise the debt limit

Democrats are betting Republicans will blink and agree to raise the debt ceiling before it expires, a risky bet against a weeks long standoff that threatens the health of the financial markets and continued U.S. government operations.

Should the Federal shutdown happen this fall, it could overshadow Democrats' efforts to push through President Joe Biden's $4.1 trillion economic agenda and serve a blow to the party heading into the next year's midterm elections.

Democrats passed the opportunity to muscle a debt-ceiling hike through the Senate on a political line vote last week, opting instead to go through the normal legislative process - perhaps linked to a stopgap government-funding bill - that will require the acquiescence of 10 Republican senators.

Democrats have said they shouldn't have to bear all the burden for a growing debt that is at least in part a result of tax cuts they opposed when Republicans were in charge.

It's a strategy that strikes some political watchers on the left as insane or even ill-advised. Senate Republican Leader Mitch McConnell and the majority of the GOP oppose Biden's spending and tax plans and vow they will not help raise the debt limit while he is pursuing them.

Democrats could have included a provision in their budget resolution as McConnell suggested, simply by adding a part-time debt limit hike to the budget. Instead they are seeking to set a precedent that neither party should hold the debt limit hostage.

Senator Barack Obama, a senior adviser to Dan Pfeiffer during the last debt-limit crisis, suggested in a recent column Democrats would have used the budget process to bypass the Republicans on debt and raise the limit high enough that Biden wouldn't need to come back to Congress before the 2024 presidential election.

They haven't taken that advice.

Treasury Secretary Janet Yellen has warned Congress needs to act after returning from the August recess deadline for Democrats writing massive packages that Republicans strongly oppose. At the same time, lawmakers must pass stopgap legislation to keep the government open past Sept. 30.

Whether Democrats will put the debt-limit suspension on needed government-funding legislation or take a more complex route is something Zach Moller, a former Democratic Senate staffer who works for centrist researcher Third Way, is watching closely.

Moller says I am not sure where this is going to end up, so I am sure what will be.

A decade ago, just getting close to a historic debt default rattled financial markets, resulting in the first-ever credit downgrade of federal debt and tanking stocks, consumer confidence and approval ratings for then-president Obama and Congress.

In contrast to the 2011 fight, which occurred after Democrats took the House in a tea party inspired wave for Republicans and the White House, Democrats are in charge of both chambers of Congress and the White House. They are heading for a midterm election in which Republicans have already return to warning about debt, deficits and inflation - concerns shelved under former President Donald Trump.

Without special budget protections from a filibuster, Democrats have no easy way to avoid a default on bills racked up by congress without at least some GOP help.

Efforts toward a possible compromise have so far sputtered. President Lindsey Graham of South Carolina dropped plans to request Republicans to attach GOP-backed budget reforms to a debt hike. Instead, McConnell signed on to a letter with other Republicans saying they wouldn't back raising the debt limit.

There's been no hint either of a budget deal that would tie Republican spending priorities like higher defense spending to a debt-limit increase.

There is at least one other option - the so-called nuclear one.

Democrats have yet to move it, but there might not be a better moment than to end the Senate's 60 vote rule than to prevent a catastrophic government default.

At least two Senate Democrats, Joe Manchin of Arizona and Kyrsten Sinema of West Virginia, have declared repeatedly that they would not end the filibuster. A default, however, would make this position difficulter to hold.

Changing Senate filibuster rule would require just a simple majority via a process known as the Nuclear Option. The former Senate Majority Leader Harry Reid, a Democrat, deployed it to nix the 60 - vote rule for most nominations. McConnell extended it to include Supreme Court nominees.

46 GOP senators signed a letter that said they wouldn't vote to increase the debt limit, but the letter - and Senate procedure - leave Republicans some slim wiggle room.

It's rare, but not unheard of - for senators to vote to end a filibuster but against the final bill. That very maneuver happened in 2014 during a debt ceiling fight, which was averted by an earlier debt crisis.

But that happened in Obama's second term when Republicans didn't have the leverage of threatening to tank the economy prior to his re-election.

However, there are still some Republicans talking about a compromise.

Senator John Kennedy of Louisiana said he never thought Schumer would pursue the debt limit as a Republican-only package, and said he's working on a proposal that would seek to pair an overhaul of the budget process with a debt-limit hike.

They didn't demand concessions over the debt under Trump and they insist Republicans return the favor.

If Republicans don't blink and Washington plunges into a shutdown scenario in the middle of a pandemic and a historic debt default, there are various break-glass strategies that could be employed. Each has its drawbacks.

Democratic could try to amend the budget resolution after the fact - something that would be hugely wasted procedurally and, at minimum, require yet another all-night vote-a-rama with unlimited, politically-fraught amendment votes and a messy collection of votes.

Another possibility fall this fall could be to just kick the can down the road. Citigroup Inc. for one penciled this in as the 'base case'.

'Congressional action to avoid a destabilizing issue whereby the Treasury cannot fulfill its obligations is expected' Citigroup economists led by Andrew Hollenhorst wrote in a note to clients on Friday. 'The simplest solution might be a short-term suspension of the debt limit for the end of the year, paired with a deal to keep the government open in a stopgap spending measure, they wrote.

A longer-term compromise could be worked out over that period, Citigroup suggested, without outlining what that might be.

Or the White House could again look at untested maneuvers to raise the debt limit, which Obama rejected and considered the last time around. One would have relied on the 14th Amendment provision saying that the federal debt cannot be questioned.

Another could have exploited the ability of the Treasury to issue platinum notes of any denomination - say $1 trillion each ) and deposit them into the Federal Reserve.

Obama himself has called the debt-limit crisis the scariest night of his presidency.

It remains to be seen if this is Biden's.