After Boehner: Gov’t Shutdown Averted But Debt Ceiling, EB-5 Loom

28 Sep 2015 | Author: | No comments yet »

ANALYST: The chances of a shutdown just plummeted — but the real disaster could come in a few months.

The Federal Reserve has kept everyone guessing when it will start raising interest rates. WASHINGTON, DC—Speaker of the House John Boehner stunned the political establishment on Friday morning with the news that in 30 days he would resign his leadership position as well as his Ohio seat. 2) that a continuing resolution would easily be passed this week, largely as a result of Boehner’s resignation heading off what looked to be an increasingly likely government shutdown on Oct.1, and; The short run, essentially, will be fine thanks to Boehner’s resignation in the face of a brewing rebellion by a hard right faction in his caucus that wanted to use the budget process and the threat of a shutdown to defund Planned Parenthood.But analysts think the short-term gains could lead to another messy situation come December, when Congress will run up against another slew of fiscal deadlines.

House Speaker John Boehner and his comments on Sunday that Congress will avoid a government shutdown this week potentially remove one source of investor anxiety as Wall Street gears up for a week heavy with economic data and commentary by Federal Reserve policymakers. For the past two years, it has been speculated that Boehner would retire at some point, but conventional wisdom was that he would do so at the end of this session of Congress (and not in the midst of it). These are the blueprints that every federal office will follow if Congress does not manage to pass a stopgap spending bill to fund the government when the new fiscal year starts Thursday.

How these events play out will affect the nation at large, of course, and certain issues important to commercial real estate will be affected as well, so let’s start there. House Republican aides told Business Insider the plan was to move a “clean” funding bill next week, and conservative members of the Republican caucus left a meeting Friday morning telling reporters they would support the spending bill. And while that possibility seems remote now that Boehner’s departure removes a threat from his party’s conservative wing to topple him over funding for Planned Parenthood, the ideological conflict over abortion will probably be back on the table in mid-December, when the temporary budget expires. This problem of expectations is supposedly a manifestation of the ideological tension between the old institutionalists like Boehner and the newer members who are either tea party true believers or simply afraid of losing a primary if they don’t appear as conservative as possible. As the conflicts in Congress played out in recent weeks, managers at every federal agency spent much of their time poring over their roster of employees to decide whether the jobs they do should be considered essential to security and safety or expendable during a shutdown. “We’re hearing there will be a resolution,” said one Defense Department official who spoke on the condition of anonymity because he was not authorized to speak publicly about contingency planning. “But we can’t count on that,” the official said. “We have to prepare for all three contingencies: a new budget, a temporary budget without new money, or a shutdown.” Most agencies relied on the plans they drew up in 2013, when another conflict in Congress, over the Affordable Care Act, forced a 16-day partial shutdown.

Speaking on CBS’ Face the Nation, he said the House this week would pass a government funding bill now moving through the Senate, which does not meet conservatives’ demands to cut off money for the Planned Parenthood health group. The last one, in October 2013, shaved a 0.3 percentage point off GDP in the fourth quarter of that year, according to the Bureau of Economic Analysis. As someone who questioned the stability of Boehner’s speakership in a 2014 paper, I have an explanation for the speaker’s downfall: how the combination of divided government and party polarization bought about an important change in the legislative agenda. Disputes over these issues between the two parties and among Republicans will not be resolved by Boehner’s departure. “The next relevant question for financial markets will be how this affects the debt limit and other pending issues. When the House of Representatives under Republican control works on “normal” legislation, the goal is to move policy from a liberal status quo to a more conservative alternative.

And the Internal Revenue Service “would halt taxpayer services such as responding to taxpayer questions, including telephone customer service functions,” its plan says. The Congressional Budget Office has said the so-called X date — the date at which the debt ceiling will have to be raised or the country will begin defaulting on its obligations — will come sometime between mid-November and mid-December. “We are increasing our odds from a 10% probability to a 25% probability of some kind of accident that would keep Congress from raising the debt ceiling in time due to brinkmanship, procrastination, or political gridlock,” Krueger said. Whatever divisions exist among the Republicans, then, are hidden by an agenda that unifies the party, even if those divisions are wide and substantive underneath the surface. But Park Service officials also added new language for First Amendment demonstrations on the National Mall, the memorials and Independence National Historic Park in Philadelphia, which could take place as long as the participants obtained a permit before the shutdown.

While the S&P 500 stock index actually rose about 3.0 percent during the last government shutdown in 2013, the gains occurred during a year when the index rose nearly 30 percent. President Barack Obama and Democrats want to increase spending beyond the agreed-upon caps of the 2011 budget sequester, while most Republicans want to lift only military spending while making further cuts on the domestic side. There is no incentive to take up such legislation — except as bait for a veto by President Obama — and until the Republican takeover of the Senate in the 2014 midterms, even that wasn’t possible. Stripped of any such normal legislative processes, the House since 2010 has focused on must-pass legislation to avoid government shutdowns and debt-ceiling breaches. The four busloads of veterans, visiting from Mississippi as part of a once-in-a-lifetime Honor Flight tour, ignored police admonitions not to enter the memorial, as lawmakers and tourists cheered them on.

Since August 20, more than half of the trading sessions have seen moves of at least 1.0 percent in either direction on the benchmark S&P 500 index. “As you transition towards the later stages of negotiations, if they can’t get to a conclusion or a deal done, then absolutely the markets will take that as a third arrow in the quiver on market volatility and potential downside,” said David Lyon, global investment specialist at JP Morgan Private Bank in San Francisco. These fiscal deadlines look likely to coincide with the Federal Reserve’s mid-December meeting, when the Fed will once again convene to consider whether to raise the policy rate. A host of Fed officials are scheduled to speak, including Federal Reserve Chair Janet Yellen, New York Fed President William Dudley, Chicago President Charles Evans and San Francisco President John Williams. Investors will also eye reports on U.S. housing and manufacturing, and the week culminates with the September Labor Department payrolls and unemployment report. Some political and financial observers fear that with Boehner leaving, the stage is set for a repeat of 2011 — per Eurasia Group President Ian Bremmer’s tweet — but this time the respective sides will approach the negotiating table with their positions intractable hardened.

The challenge for Boehner in these circumstances was that to avoid a debt-ceiling breach or shutdown, he needed to persuade a bloc of Republicans to break off from their own party, side with Democrats and open themselves up to the possibility of a primary challenge, while alienating the caucus members who sincerely prefer shutdowns to any deal anyway. Moreover, that required solving what we might call the “collective-action problem of sincere voting.” While many Republicans have sincerely wanted to avoid debt-ceiling breaches and shutdowns, they have faced electoral pressure to vote against any bipartisan deal out of a fear of primary challenges (overstated though those fears are, as Bernstein correctly noted). A possible breach of the US debt ceiling looming in December is nothing short of a calamity to economists; indeed in 2011 then Fed-chair Ben Bernanke was urging Congress to raise it. It writes: “Congress in late July approved and sent to the president the latest short-term patch for the Highway Trust Fund, winning more time for House negotiators to come up with a multi-year funding bill — along the lines of the one approved by the Senate.

Further complicating matters in this regard are recent revelations that federal infrastructure funding could last six months longer than previously expected — until June 2016. US Transportation Secretary Anthony Foxx clarified that although the cash balance of the highway account should stay above zero until next June, it will only stay above the ‘prudent level’ of $4 billion until November 2015.” On Friday evening the Real Estate Roundtable concluded that with Congress facing multiple, overlapping deadlines, there remains the possibility — even the likelihood — of a year-end, “catchall” bill that keeps the government funded through fiscal year 2016, while dealing with the highway reauthorization, tax ‘extenders,’ debt ceiling extension, EB-5, and other provisions.

I want to clean the barn up a little bit before the next person gets there.” Now this could well be wishful thinking and Boehner perhaps was talking about just the continuing resolution. On the other hand, no one knows better than Boehner the trauma caused by such brinkmanship – on the negotiators themselves and on the nation — and he is no fan of the intractable positions for which his hard right flank has repeatedly called.

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