On Thursday, while Washington was transfixed by Hillary Clinton’s marathon testimony before the Benghazi committee, a Republican bill to raise the debt limit fell apart. The Treasury Department says it must be raised by Nov. 3 to avoid a cataclysmic default. On Thursday morning, a Goldman Sachs note said it “seems unlikely” that the issue will be as disruptive as it was in the past and predicted “a debt limit increase will be signed into law by the Nov. 3 deadline.” But, the note went on to point out, “neither the House nor the Senate has taken any action so far to address the issue.”
A few hours later, House Republicans abandoned the vehicle that was supposed to get the job done—a bill by the conservative Republican Study Committee (RSC) raising the limit into 2017, but also freezing new regulations and delivering a host of other conservative goodies. The RSC bill was supposed to get a Friday vote. But aides said it didn’t have enough support to pass. There’s no clear path forward.
It remains likely, perhaps overwhelmingly so, that Congress will still find a way to raise the debt limit by Nov. 3, as Goldman suggested. But with less than two weeks to go until that deadline, and with the recent turmoil in the Republican House caucus, it’s not impossible that something could go wrong. Indeed, Treasury Secretary Jack Lew has expressed worry about the possibility of an “accident.”
In an interview, Jim Manley, a former top aide to Democratic Senate leader Harry Reid, offered three doomsday scenarios that could theoretically lead to default.
“What usually happens with the debt limit,” says Manley, “is that Republicans go through a Kabuki process of having show votes before they do the right thing. They pass a bill [raising the limit] with all sorts of conditions attached, those get stripped by the Senate, everyone freaks out. Then at the last minute they pass a clean bill.”
The reason Goldman Sachs and other observers are so mellow about the deadline this time is that hardline conservatives who threaten default lack a key point of leverage: They can’t oust House Speaker John Boehner because he’s already said he’ll resign next week. Boehner has said he wants to “clean up the barn” before leaving, which has been interpreted to mean he’ll put a “clean” debt limit bill on the House floor and pass it with mainly Democratic votes, as he has in the past. That will probably still happen. But here’s how it could go wrong:
Doomsday Scenario #1: The Clock Runs Out
The Kabuki process Manley refers to involves what is essentially a game of hot potato: To appease conservatives, the House passes a bill on a party-line vote with provisions attached that no Democrat can support; the Senate strips those provisions and passes a clean bill, which it sends back to the House; as midnight approaches, Boehner puts the clean bill on the floor and it squeaks through. But this back-and-forth takes time, owing to procedural rules and the glacial pace at which Congress operates. “It will probably take the Senate at least three or four days to pass the debt limit legislation once it receives it from the House,” the Goldman note points out. “The wrinkle is always the House,” says Manley. “They were supposed to start the process by the end of this week, but it’s now pushed into next week. If it continues to get bogged down in House, and the Senate for whatever reason can’t act quickly enough, then it might not get done before the Nov. 3 window.”
Spending bills are supposed to originate in the House. But Republican Senator John Cornyn has alluded to an emergency plan in which the Senate could append a debt-limit increase to an unrelated bill already sent over from the House. In theory, this would save the day. But it would enrage House conservatives. “The House would revolt if the Senate sent over a clean bill,” says Manley. That won’t matter if Boehner can pass the bill with mostly Democratic votes. But what if he can’t?
Doomsday Scenario #2: House Republicans Revolt
“As long as Boehner doesn’t lose his nerve,” says Manley, “the safety valve is him putting the clean bill on the floor and finding the 30 Republican votes he needs [to join with Democrats] to get to 218 [votes necessary to pass a bill through the House].” Because that is what’s happened in the past, the assumption is that it will happen this time, too. But there’s a problem. As of Friday morning, Politico reports that Boehner can’t muster those 30 votes: “a ‘clean’ measure appears to lack enough GOP votes to pass, even with the backing of all House Democrats.” There’s still time for that to change, of course, and the pressure will only mount on recalcitrant Republicans as the Nov. 3 deadline looms. But there’s another deadline looming before then.
Doomsday Scenario #3: Boehner Bails Out
Boehner has said that he’ll step down at the end of the month. But if the debt-limit drama drags on long enough, he’ll presumably be gone before the final act and unable to function as the “safety valve.” On Wednesday, House Republicans will vote on a new speaker, likely to be Wisconsin Representative Paul Ryan. The following day, the full House will vote and (probably) install Ryan as Boehner’s replacement. But if Boehner doesn’t manage to raise the debt limit before then, the job would fall to Ryan. “It’ll be Ryan’s decision,” says Manley. “But the rub is that we have to assuming he’ll vote ‘no’ to satisfy the crazies. He’s going to have to vote ‘no’ or the House Freedom Caucus will try to oust him. So where does the leadership come from to get the necessary Republican votes?”
Again, it’s hard to imagine that Republicans won't find a way to raise the debt limit. Ryan, a staunch conservative, is also a pragmatist who presumably understands the economic implications of a default. But it’s not impossible that Lew’s “accident” might come to pass. “I get hung up on the fact that there aren’t the votes for this—what’s to prevent it?” says Manley. “Nothing.”