Debt accord elusive as Senate leaders seek U.S. shutdown end

October 14, 2013 05:37 AM


Senate leaders have yet to reach an agreement on how to end the U.S. fiscal impasse amid mounting concern in financial markets three days before the government’s borrowing authority lapses.

Senate Majority Leader Harry Reid said yesterday that he had a “productive conversation” with Minority Leader Mitch McConnell without reaching a conclusion on a plan to send to the Democratic-controlled chamber for a vote.

“The discussions were substantive and we’ll continue those discussions” Reid said on the Senate floor as the parties remained divided over federal spending levels. “I’m optimistic about the prospects for a positive conclusion.”

While optimism also was expressed by Democratic and Republican senators on Sunday television talk shows, there was little evidence to support their words as the government’s partial shutdown entered its third week and the markets weighed the short time left to avert a U.S. default.

U.S. stocks fell, halting the biggest three-day advance since January. The Standard & Poor’s 500 Index (CME:SPZ13) dropped 0.5% at 9:40 a.m. in New York and the Stoxx Europe 600 Index slipped 0.2%. Japan’s currency appreciated for the first time in five days against the dollar (FOREX:USDJPY) and the cost of insuring against losses on Treasuries increased.

Senate, House

The U.S. cash bond market is shut for Columbus Day. Gold gained 1% and natural gas jumped to the highest level in almost four months.

The Senate opens today’s session at 2 p.m. in Washington with votes on unrelated items scheduled for 5:30 p.m.

The House meets at noon today and Republican leaders are weighing whether to bring up their plans for a short-term debt limit increase, said two aides who spoke on condition of anonymity to discuss strategy.

The details of that bill and timing for House action haven’t been decided, the aides said.

The congressional deadlock over increasing the U.S. debt ceiling from $16.7 trillion is threatening the U.S. and world economies, said International Monetary Fund Managing Director Christine Lagarde.

Recession Risk

“If there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over,” Lagarde said in an interview on NBC’s “Meet the Press” program about the impact of not raising the borrowing limit. “And we would be at risk of tipping, yet again, into recession.”

McConnell, in a statement yesterday, urged Democratic leaders to support a plan, based on one drafted by Republican Susan Collins of Maine, which Democrats rejected Oct. 12.

Polls show the public is putting most of the blame for the 14-day partial government shutdown on Republicans.

“I think we’ll solve this problem over the next few days, and I think today may be a very good day,” Senator Bob Corker, a Tennessee Republican, said today on MSNBC’s “Morning Joe” program. “All of us now are talking about spending, which is where we should have been in the first place.”

Collins’s group of 12 senators seeking to frame an accord planned to resume their discussions at 9 a.m. today, said a Senate Democratic aide with knowledge of the negotiations, who spoke on condition of anonymity.

Resolution Soon

“It’s taken far too long, we never should be in this situation, but I do believe we are going to see a resolution this week,” Collins said yesterday on CNN’s “State of the Union.”

Six senators working with Collins -- Democrats Joe Manchin of West Virginia, Heidi Heitkamp of North Dakota, Mark Pryor of Arkansas, Amy Klobuchar of Minnesota and Joe Donnelly of Indiana and independent Angus King of Maine -- yesterday said they don’t support the proposal in its current form.

“Productive, bipartisan discussions” have taken place, “but there is no agreement,” the senators said in a statement.

President Barack Obama, in a phone call with House Minority Leader Nancy Pelosi of California, “reinforced that there must be a clean debt limit increase” -- and a stopgap spending measure also free of policy add-ons -- before budget negotiations can begin, according to a White House statement.

$70 Billion

The Senate negotiations include discussions of easing the spending caps imposed by the across-the-board cuts known as sequestration. Richard Durbin of Illinois, the second-ranking Democrat in the Senate, said there is a $70 billion spending gap between Democrats and Republicans.

Democrats don’t want to lock in lower spending levels for most of the 2014 fiscal year, which began Oct. 1. They have been willing to accept the lower numbers through Nov. 15.

Disagreement over spending is the big sticking point, said Jim Manley, a former aide to Reid. Manley, in a telephone interview, said he’s watching “to see if Senator McConnell demands some sort of fig leaf from Senator Reid to protect the speaker or whether he’s prepared to throw him overboard to get this all behind him.”

Time is running short for the Senate to pass any agreement and for the House to act on it before Oct. 17, when U.S. borrowing authority lapses. The federal government would start missing payments sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

Oct. 17

Representative Tim Huelskamp, a Kansas Republican, played down the importance of this week’s deadline and said the White House “is trying to scare the markets.”

“Oct. 17 is a date that won’t have a major impact unless the White House can create concern about that,” Huelskamp said on CBS’s “Face the Nation.”

Liu called for a new international reserve currency to replace the dollar “so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil” in the U.S.

Senate Democratic leaders said Collins’s proposed debt- limit increase to January was too short to provide certainty, and her plan’s funding extension at Republican-favored levels, until March, was too long.

The Budget Control Act of 2011 established a $967 billion cap for fiscal 2014, a $21 billion cut compared with the fiscal 2013 level. If Congress doesn’t pass legislation to reduce spending or alter the cap before January, a second round of automatic cuts goes into effect to meet that goal.

Device Tax

Collins’s plan sought to give federal agencies more flexibility under the across-the-board cuts. The plan also would have set a mid-January deadline for longer-term budget talks and made two changes to the president’s health-care plan: delay a tax on medical devices for two years -- making up lost revenue through pension-rule changes -- and requiring the Obama administration to verify income levels for enrollment in health benefits.

A Senate deal probably would face the prospect of a hostile reception from House Republicans still seeking to curtail Obamacare and opposed to easing spending caps.

“We are not going to increase spending,” Representative Jim Jordan, an Ohio Republican, said on Fox. “The sequester is one of the few good things we’ve done to control spending.”

Republican strategist Ron Bonjean yesterday described the latest efforts to find a way out of the impasse as “a Rubik’s Cube from hell,” adding that even if the Senate passes a plan, it would be “still pretty much a jump ball in the House.”

“They may simply reject it without offering a Plan B,” Bonjean, a one-time aide to former Republican Speaker Dennis Hastert, said in a telephone interview.

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