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Free AccessMNI EXCLUSIVE ANALYSIS: US Dems May Save GOP From Debt Debacle
--Republican Factional Warfare, Disarray Is Not Likely To Ease By Autumn
--Quiet Back-Channel Talks Between House Speaker Ryan, Democratic Leader Pelosi
Will Be Pivotal In September and October
By John Shaw
WASHINGTON (MNI) - The conventional wisdom in Washington is that the only
thing that can rescue the U.S. from a chaotic, and possibly even a catastrophic,
autumn on fiscal policy is for Republicans to set aside their myriad divisions,
calm their warring factions, and settle on short-term plan on spending and the
statutory debt ceiling.
But that conventional wisdom is almost certainly wrong.
In fact, congressional sources tell MNI the only thing that can avert a
market-rattling debt ceiling impasse and a shutdown of the federal government is
for a bipartisan agreement to be secured in back-channel talks between House
Speaker Paul Ryan and House Minority Leader Nancy Pelosi.
That accord, if cinched, would probably suspend the statutory debt ceiling
until after the November, 2018 mid-term elections and set discretionary spending
at levels for the 2018 fiscal year that both parties can live with.
The thinking is that such a Ryan-Pelosi agreement could pass both the House
and Senate and get President Donald Trump's perhaps reluctant signature.
So while most of Washington is riveted on the drama and the disputes within
the GOP, the real action will the effort of Ryan and Pelosi to secure the rarest
of achievements in Donald Trump's America: a bipartisan agreement on an issue of
major consequence.
Ryan's overtures to Pelosi arise not out of a new conversion to bipartisan
governance, but the Speaker's stark assessment of the machinations within his
own Party, Republican sources say.
Fissures within the Republican Party have widened, not narrowed, in recent
weeks.
Ryan has tried to play down the factional infighting that persists within
his House GOP caucus by calling these disputes "family discussions" that are
both robust and ultimately productive.
But rank-and-file House Republican lawmakers privately say that while the
internal GOP debates have been robust, they have not been productive.
Intra-GOP turmoil is evident in the Senate as well.
At a briefing Tuesday, Senate Majority Leader Mitch McConnell, a fierce
Republican partisan, disputed Trump's assertion that the failure of health
legislation in the Senate was due to Democratic intransigence. Trump urged
Senate Republicans to change the rules of the Senate so they can drive the GOP
agenda through the upper chamber.
"It's pretty obvious that our problem on health care was not the Democrats.
We didn't have 50 Republicans," McConnell told reporters after a Senate
Republican policy luncheon.
"There are not the votes in the Senate, as I've said repeatedly to the
president and to all of you, to change the rules of the Senate," McConnell
added.
Republicans have a 52 to 48 majority in the Senate and a 240 to 194
majority in the House, with one vacant seat.
However, the House GOP majority is more precarious than is evident from the
overall party breakdown.
Nearly three dozen House Republicans are members of the so-called House
Freedom Caucus which is a very conservative group of lawmakers who often appear
to relish resisting the pleas of the GOP leadership.
Ryan is unable to pass legislation when he faces opposition from all
Democrats and the Freedom Caucus.
The most consequential short-term challenge for the fall is finding a
formula to increase the statutory debt ceiling.
The Congressional Budget Office has said Congress needs to lift the nearly
$20 trillion debt ceiling by mid-October.
In late May, the Freedom Caucus said it would only support debt ceiling
legislation that is paired with a measure that "addresses Washington's
unsustainable spending by cutting where necessary, capping where able, and
working to balance in the near future."
The problem for Ryan is that any debt ceiling bill that the Freedom Caucus
supports would certainly be opposed by all Democrats and dozens of other House
Republicans.
Treasury Secretary Steve Mnuchin met Tuesday with McConnell and Senate
Minority Leader Chuck Schumer to discuss the debt ceiling.
McConnell called the session a "good meeting."
"We are going to be looking for a way forward to do that together, to make
sure America continues to never, ever default," McConnell told reporters after
Mnuchin left.
Raising the debt ceiling, McConnell said, is something "we all know will
need to be done in the next month or so."
But Schumer took a more skeptical stance after the meeting with Mnuchin.
He said the session was inconclusive because there were no representatives
from the House, especially the GOP.
"Where are the House Republicans and where is Speaker Ryan?" Schumer said.
"Before we address the debt limit, we have to know where they are at," Schumer
said.
He added that the White House has not provided clear direction on the
matter.
"We don't know where the White House is because they have different
factions saying different things," Schumer said.
Senate Majority Whip John Cornyn has said he would like debt ceiling
legislation to include an agreement on adjusting the FY 2018 spending levels for
defense and domestic programs.
This is the very package that Ryan and Pelosi are trying to craft behind
closed doors.
--MNI Washington Bureau; tel: +1 202-371-2121; email: john.shaw@marketnews.com
[TOPICS: M$U$$$,MC$$$$,MT$$$$,MX$$$$,MFU$$$,MGU$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.