U.S. Fiscal Impasse Widens as Senate Leaders Open Talks
Lawmakers said they lack a clear plan for preventing a U.S. default and ending the 12-day government shutdown as bipartisan Senate leaders began preliminary discussions.
Senate Republicans today blocked Democrats’ plan to suspend the debt ceiling through 2014. Talks between House Republicans and President Barack Obama faltered. Senate Democrats rejected a proposal from Republican Senator Susan Collins of Maine that had gained momentum in the past day.
Democratic senators warned of potential stock market declines Oct. 14 if Congress can’t reach an agreement. Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell entered into talks that Reid described as “very preliminary.”
“I hope that our talking gives some solace to the American people and to the world,” Reid told reporters today in the Capitol. “We’re trying to figure out a way to go forward.”
Reid and other Democratic leaders are meeting with Obama at the White House today.
With five days left until U.S. borrowing authority lapses on Oct. 17, lawmakers in both parties and both chambers said they weren’t sure what proposal could get enough votes to pass. After Oct. 17, the U.S. will have $30 billion plus incoming revenue and would start missing payments sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
“This is playing with fire,” said Senator Charles Schumer, a New York Democrat. “We don’t know when the markets will react to this.”
“I worry on Monday when the American markets open” whether “the stock market will go down” and interest rates will rise if the impasse continues, Schumer said.
The Standard & Poor’s 500 Index (SPX) rallied yesterday after House Speaker John Boehner offered a debt-limit increase through Nov. 22 without policy conditions. The index reached its highest level since September, increasing 0.6 percent to 1,703.20 at 4 p.m. in New York.
Rates on Treasury bills maturing through the end of the year rose while rates on securities due in October fell from highs reached earlier in the week. Yields on benchmark Treasury 10-year notes rose four basis points on the week to 2.69 percent, according to Bloomberg Bond Trader prices.
U.S. stock markets are open on Oct. 14, the federal Columbus Day holiday. Bond markets are closed.
U.S. lawmakers shouldn’t risk a default on the nation’s debt because the effects would be devastating and the consequences aren’t knowable in advance, the heads of JPMorgan Chase & Co. (JPM) and Deutsche Bank AG said today.
“The United States cannot default and, in my opinion, will not default,” JPMorgan Chief Executive Officer Jamie Dimon said at a financial industry conference in Washington. “It would ripple through the global economy in a way you couldn’t possibly understand.”
The partial government shutdown has led to furloughs of hundreds of thousands of federal employees and partial paychecks for others. It has closed federal operations such as national parks, though some services and benefits including Social Security checks continue.
Boehner told fellow Republicans today that Obama rejected his latest fiscal offer. The House hasn’t considered legislation to raise the debt limit and isn’t scheduled to vote again until the evening of Oct. 14.
House Republicans have insisted that changes to the 2010 Patient Protection and Affordable Care Act be included in any bill to end the government shutdown. Obama has insisted that such conditions are unacceptable.
The Reid-McConnell talks, between two veteran deal makers, represent the most likely hope for an agreement, said Senator Bob Corker, a Tennessee Republican.
“It’s very evident that the White House is not going to be involved in negotiations, or at least at this point they’re not,” he said. “The centerpiece is Reid and McConnell, so I think all of us want to support those efforts.”
Democrats prefer raising the $16.7 trillion debt limit for as long as possible and with no policy conditions attached. Republicans blocked Reid’s plan to push the next debt-limit fight into 2015.
The 53-45 vote today fell short of the 60 votes needed to advance the measure.
Reid then rejected a proposal from Collins and Democrat Joe Manchin of West Virginia. That plan would push the next debt-limit fight to the end of January, extend government funding for six months to March and give federal agencies more flexibility under the across-the-board cuts known as sequestration. The plan also would have set a mid-January deadline for longer-term budget talks.
The proposal would make two changes to the president’s health care plan. One would delay a tax on medical devices for two years and make up lost revenue through pension-rule changes. The other would require the Obama administration to verify income levels for enrollment in health benefits.
Democrats, including Durbin, said that the debt-limit increase is too short to provide certainty and the funding extension at Republican-preferred levels is too long.
For the past two days, the prospects for a potential deal had focused on talks between Boehner and Obama that would push the lapse of borrowing authority to Nov. 22 from Oct. 17. Republicans also wanted to attach policy conditions to a separate spending bill that would end the government shutdown.
Reid, a Nevada Democrat, said talks between the White House and House Republicans were “done.”
A White House official described the Collins proposal as constructive. Still, the administration shares the concerns of Senate Democrats, who object to the spending levels set by the plan and some of the changes it would make to the health care law, said the official, who spoke on condition of anonymity to discuss the plan.
Obama has insisted that he wouldn’t accept policy conditions attached to a debt-limit increase or a spending bill, though Jay Carney, the White House press secretary, hedged on the spending bill yesterday.
“The president has a number of concerns” about Boehner’s proposal, Carney told reporters yesterday after Boehner and Obama spoke by telephone about the speaker’s offer.
Extending the debt ceiling for a short period while budget talks occur may lead to a replay of the same brinkmanship the U.S. is experiencing now, Carney said.
“Every offer we’ve made they just flat turned us down without any counter-offer,” said Representative John Fleming, a Louisiana Republican. “Our level of expectations for the president has gradually dropped over the years to a point where we don’t expect anything from President Obama.”
Any prospective deal faces questions, including whether Boehner will allow a vote on a proposal that most Republicans would vote against.
“I am looking for our Republican colleagues to stay strong with House Republicans to resolve this stand off so that we can get back to the nation’s business,” said House Majority Leader Eric Cantor of Virginia.
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