Debt Ceiling

While the issue of the debt ceiling has already been addressed in other threads, there was no thread exclusively dedicated to this issue. Therefore, I've decided to create this particular thread to facilitate a discussion on this key issue... My feeling is that there will be a vote sometime in March. Although the Treasury can tinker with the numbers and delay the inevitable for a couple of weeks, perhaps even months, they will have to take a vote at some point. The waning demand for long-term bonds would underscore the need for such a vote sooner rather than later.

Your take on this issue?

Timing is one issue, but I'm still wondering about how much it will be raised. Attaching the 15.1T mark to the market makes for a complicated question. One that I can't say I've answered myself. I haven't really heard much on amounts yet. They'd need 15.1T by years end but nothing stops them from riding this bargaining chip again later.

It'll be raised. Will probably be raised with some sort of rule attached like a Pay as you go type deal. No one wants to see the government shut down. Even Boener said he'll vote to raise it and encourage other repubs to. Put that with a D controlled senate and its getting raised.

Interestingly, although everyone has been talking about Republicans as being the key obstacle to raising the ceiling, the votes of Democrats should not be taken for granted in this game of chicken:

http://www.professorbainbridge.com/professorbainbridgecom/2011/01/the-debt-ceiling-and-playing-chicken.html

Some interesting facts about the deficit:

http://www.businessinsider.com/facts-about-the-deficit-2010-3#

http://www.reuters.com/article/idUSTRE70B52I20110112 More leverage for inaction.

The key to that article is:
Historically the public wants a balanced budget but doesn't show a lot of enthusiasm toward the policies to get us there

People dont like debt but they also dont like taxes and cut backs. Public debt is much less tangible than taxes and cuts. So more debt wins.

Yup. Republicans can bitch and complain all they want, but if your not going to look at foreign policy, and want a balanced budget, their would have to be MASSIVE cuts. I live in Canada anyway, and we usually have balanced budgets, or a small deficit from year to year.

This message was edited 1 time. Last update was at January 14, 2011 19:05:34 UTC

All the signs in this thread point to the February contract dropping to 0. I'm currently sitting on a profit taking buy at 11 (I think I can put that to good use elsewhere rather than wait a few weeks for a better price) and there's someone at 14 and a fairly big order at 10. So my question, are these all profit taking bids or is there someone who thinks that the contract has a chance (not necessarily a good chance, but say 20% or better) of coming true?

The debt ceiling will definitely not be raised in February. A first vote in March is a distinct possibility. Whether an agreement will also be reached in conference between the House and the Senate in the same month is another question...

Ultimately, it will be very, very difficult for Republicans and Democrats to find a long-term agreement on the issue of debt in the near future. Hence, I don't think that Republicans will agree to more than a short-term increase in the debt ceiling. I doubt it will amount to more than 15 trillion (which would fall short of the amount specified in this contract)...

This would allow Republicans to keep up the pressure and to try to capitalize on the fears of the public while positioning themselves as the party of fiscal rectitude and attacking Obama for his spending frenzy. Perhaps, the issue of debt is the greatest weakness of Obama's presidency. An incredible amount of money went into bailouts and stimulus programs that impose a huge burden on future generations but resulted in a limited amount of jobs. Republicans would want to reinforce that message as often as they possibly can. Small increases in the debt ceiling would allow them to do so.

Disclosure: I have shorted 600 contracts @ 45 for February and have also shorted a couple of hundred contracts for the following months.

This message was edited 1 time. Last update was at January 20, 2011 15:01:08 UTC

Well that's what I had been thinking, but there are still some unanswered questions. If they raised it less than 15.1T then they would have to revisit this question pretty soon. Even if the Repubs get some service cuts, you can't cut that much, and they just passed a massive tax cut.

Do the repubs really want to take ownership of this issue? Would it be better to fewer votes for a debt increase and get a multi-year service cut agreement in exchange? Thus being able to claim victory and just allow the debt to balloon until 2012 and blame the Dems at election time.

Yes, exactly. I think they'd want to revisit the issue as often as possible. It exposes Obama's greatest weakness. They'd want to keep on reinforcing the message that the debt ballooned under Obama but where are the jobs? Just keep on playing the song that Obama has been the most spendthrift President in American history over and over until everyone gets it...

I really doubt that they'll come to a multi-year agreement in the coming months. I simply don't think the willingness is there on both sides. Basically Obama does not want to make those spending cuts now and Republicans know that their base is expecting some pretty drastic measures. There also are major disagreements on what to cut. It would take some time to get a bipartisan agreement. A big increase in the debt ceiling would inevitably be viewed as a failure and more politics as usual. It would inevitably alienate the Tea party types as well as independents. Republicans would hand over their one bargaining chip. In return for what?

In the end they'll just bump up the debt ceiling long enough to see themselves through for a couple of months. They still have to come to an agreement on the next fiscal year which begins in October. If Republicans want to use this as leverage for those negotiations and keep the issue in the news that would suit them perfectly. It keeps them on the offensive and Obama on the defensive.

Ultimately, I think Obama will be willing to make spending cuts toward the end of his term when he is up for re-election. He'd want to make the case that he will balance the budget as soon as the economy has stabilized and is back on the path to growth. But it is too early to expect that now. Even if he made a big leap and announced a willingness to make major spending cuts (which is unlikely), Republican would simply ask for more. That's just the way this game works...

This message was edited 1 time. Last update was at January 23, 2011 05:02:24 UTC

ChrisVanNiekerk wrote:

Ultimately, I think Obama will be willing to make spending cuts toward the end of his term when he is up for re-election. He'd want to make the case that he will balance the budget as soon as the economy has stabilized and is back on the path to growth. But it is too early to expect that now. Even if he made a big leap and announced a willingness to make major spending cuts (which is unlikely), Republican would simply ask for more. That's just the way this game works...

The problem is that election year is a bad time politically to make spending cuts. I doubt his base will support it (they won't vote Republican, but they might vote third party instead or even not vote at all). This year is better because he has a good chance of smoothing over the issue next year, if the cuts come this year.

My view is that if spending cuts don't happen this year, then they probably won't happen until after election day in 2012.

This message was edited 9 times. Last update was at July 15, 2011 16:40:44 UTC

The plan that is gaining traction is one that "would give President Obama the authority to raise the debt ceiling in three parts, by $2.5 billion overall. The Congress would not vote directly on those increases, but could reject them with a resolution of disapproval - an unlikely outcome."

http://blogs.ajc.com/jamie-dupree-washington-insider/2011/07/15/path-to-a-debt-limit-deal/

The plan envisages that the first increase will be for 700 billion. That would be below the 15.1 trillion USD specified in the contract. From my understanding giving the President the authority to ask for an increase in three parts does not amount to Congress approving an increase unless the first increase took the debt ceiling beyond 15.1 trillion.

Of course, it all depends on the final language of the legislation. This is what Keith Hennessey observed:

The McConnell bill does not increase the debt limit. It authorizes the President to increase the debt limit, as long as Congress doesn't prevent him from doing so. Thus, you as a Member of Congress could vote for the McConnell bill, then vote for the subsequent resolutions of disapproval, and honestly say that you never voted to raise the debt limit. Yet the debt limit is much more likely to be increased, given the lower success hurdle of just sustaining a veto. This political logic is core to the proposal.

http://spectator.org/blog/2011/07/15/hennessey-on-the-mcconnell-pla

Your take?

Disclosure: I'm short on this contract for July, August and September. I don't doubt that they will increase the debt ceiling. I just don't think that they will do it in one single increase but rather in smaller increments.

This message was edited 4 times. Last update was at July 15, 2011 16:49:34 UTC

Update:

8. The Hybrid McConnell. The most recent chatter in Washington is about the possibility that Mr. Obama and Republicans might agree on a modified version of Mr. McConnell’s plan.

Under that approach, Mr. Obama would be given the authority to raise the debt ceiling, but both sides would also agree to a series of cuts that would begin to reduce the nation’s long-term debt. Those cuts might approach the levels proposed by the White House during the afternoon meetings this week.

It’s not clear whether House conservatives would go along with the plan. And much would still have to be negotiated. But on Friday, Mr. McConnell and his Democratic counterpart in the Senate, Senator Harry Reid of Nevada, the majority leader, are set to continue discussions on how a plan might work.

http://thecaucus.blogs.nytimes.com/2011/07/15/a-debt-ceiling-cheat-sheet-8-possible-plans/

That plan might take the debt ceiling beyond 15.1 trillion in August but I'm still skeptical. I think Republicans would be looking for as many votes as possible to keep the issue in the news and on voter's minds...

Of course, it would have been better for Republicans if they had settled on one strategy to begin with. The President said that he would veto any short-term increase of the debt ceiling but they could (still) test his resolve by passing a short-term increase coupled with spending cuts that have been previously agreed to (in the discussions). That would lay the blame for any failure to increase the debt ceiling in the President's court.

I'd like some clarification on this one by intrade, the rules of the contract state: "Expiry will be based on the approval of any increase in the debt ceiling passed by Congress"

This seems to me to suggest that it would have to be a bill that gets through both houses of congress, not an agreement among leadership to let the president raise it himself.

Additionally, there is the question of a multi-phase raise. If there are multiple phases and the first leaves the limit below 15.1 trillion until sometime in 2012 but raises it above that in a second phase, what happens then? To me, that scenario seems to suggest an expiry at 100, since the approval of the raise comes at one point, though the actual raise itself might not be until some time later.