Tags: Shutdown | Confrontation | Debt-Fight | Momentum

Shutdown Confrontation May Erode Debt-Fight Momentum

Tuesday, 01 Oct 2013 07:19 AM

A partisan stalemate that partially shuts down the U.S. government may lessen the appetite of lawmakers for risking a debt default later this month.

The reaction of markets and the economic blow from a shutdown may sap the will of rank-and-file Republican members of Congress to go through with a second fiscal confrontation with President Barack Obama on the heels of this week’s fight, said Dan Meyer, who was chief of staff to former Republican House Speaker Newt Gingrich and later a congressional lobbyist in President George W. Bush’s administration.

“It has the potential to make a significant difference,” Meyer said. Some Republican lawmakers “want to play a little too close to the flame here and, frankly, some of them need to get their fingers singed.”

“They’ll start feeling the heat pretty quick,” Meyer, now a lobbyist with the Duberstein Group, said.

The federal government headed to its first partial shutdown in 17 years as the new fiscal year began at midnight. Legislation to fund the government stalled as congressional Republicans stuck with demands for changes in Obama’s signature 2010 Affordable Care Act. Obama and congressional Democrats refused to go along.

House Speaker John Boehner, an Ohio Republican, has issued a longer list of demands before he’ll support meeting the next major government fiscal requirement: raising the national debt ceiling. U.S. Treasury officials say action is needed by Oct. 17 to raise the current legal limit of $16.7 trillion or the government will default.

Keystone Pipeline

Boehner’s conditions include approval of TransCanada Corp.’s Keystone XL Pipeline, major revisions to the tax code, a one-year delay of the insurance mandate in the Obama health care law, means-testing of the Medicare insurance program for the elderly, and reductions in government regulations.

To be sure, some analysts argued that inability of the two parties to agree on a short-term funding extension portends even greater difficulty for a debt limit extension.

Chris Krueger, a Washington analyst for Guggenheim Securities LLC, estimates a 40 percent probability that Congress will fail to pass a debt limit increase by the Treasury’s announced deadline.

“Washington couldn’t sink the short putt, and the debt ceiling is a much more difficult shot,” Krueger said. “The only thing probably less popular than Obamacare with Republicans is a deal to raise the debt ceiling.”

Stocks Slide

Concern that a shutdown would stunt economic growth sent stocks lower yesterday, trimming the biggest quarterly gain since the start of 2012, and the yield on 10-year Treasury notes traded at an almost seven-week low.

The Standard & Poor’s 500 Index fell 0.6 percent to 1,681.55 in New York. All 10 main industries in the benchmark S&P index dropped, with consumer goods, oil and gas and financial shares falling the most. The Treasury 10-year note fell one basis point, or 0.01 percent, to 2.61 percent, according to Bloomberg Bond Trader prices, and earlier touched the lowest since Aug. 12.

One former Republican congressional aide said the reactions of Republican party activists and donors to the outcome of the government shutdown fight will shape the debt ceiling battle.

Republican Fundraising

If likely Republican primary voters such as Tea Party followers and funding sources of potential Republican congressional primary candidates, such as the Club for Growth, view concessions won through the shutdown battle as worth the price, they will probably encourage more demands on the debt ceiling legislation, said the former aide, who asked for anonymity to discuss party strategy.

If not, members will probably choose to seek more modest concessions or avoid a debt ceiling fight, according to the former aide.

Party leaders and some rank-and-file Republicans will also be influenced by public perceptions, the former aide said. An improved image or minimal damage to the party in opinion polls would lead to stronger demands in the next fight, while a public backlash would cause a retreat, the aide said.

“If there’s a shutdown and the Republicans lose, I think the Boehner’s going to tell the Tea Party: ’You tried, you failed, let’s move on,’” said Stan Collender, a onetime Democratic congressional budget aide and now a partner at Qorvis Communications in Washington.

Safety Valve

Alec Phillips, an economist in the Washington office of Goldman Sachs Group Inc., said party leaders and most lawmakers are willing to use a government shutdown as a safety valve to release pressure for a debt default, because they consider it less risky.

Steve Bell, a former Senate Republican budget aide, said a government shutdown builds Boehner’s credibility with members of his party who favor a more aggressive approach, while allowing him to wait until the debt ceiling before asking them for a tough vote to accept something anathema to many.

“He’s going to get a vote from his more stubborn wing once, and it looks like he’s going to get it on the debt ceiling, not the government shutdown,” said Bell, now a senior director at the Bipartisan Policy Center in Washington.

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A partisan stalemate that partially shuts down the U.S. government may lessen the appetite of lawmakers for risking a debt default later this month. The reaction of markets and the economic blow from a shutdown may sap the will of rank-and-file Republican members of...
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Tuesday, 01 Oct 2013 07:19 AM
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