Line Items: Ups and Downs Edition
Ending the Shutdown and Cranking Up the Debt Limit – It’s been an up-and-down past couple of weeks. The federal government has been shut down since October 1 and the U.S. loses its borrowing authority on October 17 absent a deal to increase the statutory debt ceiling. Several times there have been hopeful signs of an end only to fizzle out. But on Wednesday a deal was announced to end the short-term crises, albeit temporarily. With the political and economic toll of the shutdown and prospective default coming into focus, Standard and Poor’s said the shutdown took $24 billion out of the economy and congressional ratings dropped, policymakers finally stepped up and addressed the short-term crises, only to create more in a few weeks. And the longer-term fiscal challenges still remain. Will they continue to kick the can down the road?
The Lowdown on the Deal – On Wednesday Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell announced an agreement to reopen the government and extend the debt ceiling. The deal will fund the government at current spending levels through January 15, 2014 through a stopgap continuing resolution (CR) and extend the debt ceiling through February 7, 2014. A bicameral conference committee will also be appointed to hash out a budget for the rest of the fiscal year as well as a longer-term spending and deficit reduction plan. The committee must report by December 13. The Senate and House approved the deal late Wednesday and the President will sign it, meaning that federal employees will return to work and a default will be averted, for now.
Americans Stood Up for a Solution – In the run up to the deal, Americans made clear they were sick and tired of the gridlock and posturing. Starbucks sponsored a petition that customers could sign at stores or online to demand that policymakers reopen the government; pay our debts on time to avoid another financial crisis; and pass a bipartisan and comprehensive long-term budget deal by the end of the year. In addition, our partners at the Campaign to Fix the Debt initiated a national advertising campaign calling for short- and long-term solutions, featuring Fiscal Commission co-chairs Alan Simpson and Erskine Bowles. Fix the Debt also recruited a bipartisan group of forty former governors who also called for swift and meaningful action. These efforts helped put pressure on policymakers to stop the games and start working together to end the stalemate.
Rising Up to Address the Debt Ceiling – Just before the agreement was announced, markets, creditors and economists began expressing concern that failure to increase the debt limit would cause a national default that would have widespread economic consequences. America’s biggest foreign creditors, Japan and China, urged the U.S. to act. In addition, credit rating service Fitch put the country on Rating Watch Negative, warning that a default would likely cause the U.S. to lose its AAA credit rating status with the service. The country lost its AAA rating with Standard & Poor’s during the last debt limit standoff. Need to learn more about the debt limit? Check out our debt ceiling FAQ.
Deadlines Moved Down the Road (Slightly) – While the deal will reopen the government and prevent an immediate default, it will only move back the deadlines a few weeks. We need a more comprehensive budget plan to stop the cycle of mini crises and fiscal speed bumps. The conference committee offers an opportunity to devise a broader approach that addresses the long-term fiscal challenges, or at least puts in place a credible process for doing so. No doubt replacing the automatic, across the board cuts of sequestration will be a priority. While that is important, it is imperative that policymakers recognize that savings from the sequester itself are not enough to put the country on the right track. Additional savings, phased in over a longer period of time, will be required to put the debt as a share of the economy on a downward path over the long haul. As Robert Litan of Bloomberg Government points out, the long-term fiscal challenges remain. And contrary to what some may say, addressing the long-term debt remains a priority. There are plenty of ideas that have been put forth by bipartisan commissions and other efforts that can inform the committee’s work. While plenty of bad ideas have been put forward, there are also many good ideas as well that can be drawn from. House Budget Committee chair Paul Ryan (R-WI) and former Senate Budget Committee chair Kent Conrad (D-ND) offered some ideas recently in separate op-eds. So did former White House economic adviser Michal Boskin. Fix the Debt provided a framework to stop the madness of government shutdowns and risks of default, start talking on a bipartisan basis, and solve our long-term economic and budget problems. It can lead the way to finding common ground through common sense solutions. Fix the Debt’s Congressional Fiscal Leadership Council also provided ideas to include in a comprehensive package.
Farm Bill Moves Back Up the Agenda – Lost amid the shutdown and debt ceiling crises, some movement has occurred on the farm bill. A conference could begin deliberations next week to resolve differences between the House and Senate. The $500 billion bill has significant implications for the budget. Key issues involve cuts to SNAP (food stamps), farm subsidies and conservation programs.
Key Upcoming Dates (all times are ET)
October 30, 2013
- Bureau of Economic Analysis releases advance estimate of 3rd quarter GDP.
December 13, 2013
- Date by which the budget conference committee must report to Congress
January 15, 2014
- The continuing resolution funding the federal government expires
February 7, 2014
- The extension of the statutory debt ceiling expires