MNI 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

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