Debt limit appears defused (for now)

From: POLITICO's Morning Money - Thursday Oct 07,2021 12:03 pm

Oct 07, 2021

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Quick Fix

Debt limit defused (for now) — Senior White House officials began this week whispering that they would employ pressure from the private sector (bank and other CEOs) to nudge Senate Republicans to move off their hard-line stance and allow a debt limit hike ahead of the Oct. 18 “X-Date” deadline that could have triggered an economically catastrophic default.

That came to pass publicy Wednesday as President Joe Biden and Treasury Secretary Janet Yellen hosted CEOs and top executives including JPMorgan Chase’s Jamie Dimon, Intel’s Pat Gelsinger, Nasdaq’s Adena Friedman, Raytheon’s Greg Hayes, Citi’s Jane Fraser and Deloitte’s Punit Renjen, all of whom to one degree or other warned of the dangers of even getting close to breaching the limit.

Wall Street itself also cooperated with White House strategy as markets began to seriously wobble and banks like Goldman Sachs started to issue research notes suggesting that missing or coming very close to the Oct. 18 date was a real possibility.

All of the market tremors and CEO warnings appeared to spook Senate Majority Leader Mitch McConnell who is counting on heavy corporate support in the 2022 midterm elections as the party attempts to retake one or both houses of Congress.

McConnell and the GOP still want to force political pain on Democrats for raising the debt limit. But they can't do it at risk of tanking the economy an alienating the entire corporate world.

The deal to boost the debt limit into December without GOP filibuster was not final as of Thursday morning but appeared likely to get there, via our Burgess Everett, Marianne Levine and Caitlin Emma:

“Senate leaders were working to finalize the deal … effectively deciding to kick the can on the stalemate over the nation‘s borrowing limit for the next two months. But even as Democrats accepted part of the Senate minority leader’s entreaties, they pledged to reject his demands that the majority party use the laborious process of budget reconciliation to pass a longer debt ceiling increase.

A new fiscal cliff? — Keep the champagne mostly on ice as the deal sets up another potentially giant train wreck in December when government funding runs out (Dec. 3) and the debt limit likely has to get boosted again (though it’s unclear if “extraordinary measures” from Treasury could actually push that deadline back by weeks or months.)

And there is still a sharp divide between the parties on how to raise the debt limit again, with Republicans insisting Democrats do it on their own through reconciliation and Democrats demanding a bi-partisan approach.

Markets celebrate — Never mind the caveats for now, via Reuters: Asian shares rallied on Thursday, taking heart from a late recovery on Wall Street after U.S. politicians appeared near to a temporary deal to avert a federal debt default and as Russia reassured Europe on gas supplies, calming volatile markets.

GOOD THURSDAY MORNING — Well we told you so (over and over)! There was never really that big a chance that we’d breach the debt limit given the catastrophic political impact for both sides.

But things could still get very weird again in December. Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @ AubreeEWeaver.

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Driving the day

Companies face new pressure to cut police ties — Via Our Zachary Warmbrodt: Racial justice organization Color of Change and watchdog group LittleSis are out with a new report today highlighting corporate contributions to police foundations and urging companies to divest from the nonprofits, which support local police departments.

DIE ANOTHER DAY — Goldman’s Alec Phillips under the header “Die Another Day” (well timed for the latest Bond): “Assuming the debt limit hike that Congress passes includes a dollar amount rather than a calendar-based suspension, there will be some uncertainty about when the next deadline will hit.

“However, it looks unlikely that the Treasury will be able to rely on extraordinary measures to operate for a few months past the new deadline as has been the case after following the end of debt limit suspensions over the last decade. … If not, there is a good chance that the debt limit and broader fiscal agenda could intersect again ahead of the (new) December deadline.”

FELLOW ACADEMICS BACK UP OMAROVA — Our Victoria Guida: More than 70 academics this week joined together to support Comptroller of the Currency nominee Saule Omarova, calling her “one of the leading scholars of financial regulation in the world” in a letter to Senate Banking Chair Sherrod Brown and Ranking Member Pat Toomey.

They also write that her works show “deep respect for the statutory constraints that Congress placed on federal banking regulators” — an implicit rebuke of her opponents in the business industry (as well as Toomey himself), who have described her views as “radical.”

The letter is signed by a number of prominent liberal academics, including Georgetown Law professor Adam Levitin, Columbia Law professor Kathryn Judge, MIT Sloan professor Simon Johnson, Cornell Law professor Robert Hockett (her colleague) and Fordham Law professor Zephyr Teachout.

MORE READING — Gibson Dunn has a detailed rundown of Omarova’s views.

REPUBLICANS WARN GENSLER ON CLIMATE DISCLOSURE — Our Kellie Mejdrich: “Senior House Republicans are urging SEC Chair Gary Gensler to refrain from imposing climate disclosure requirements on privately held companies.

Reps. Andy Barr of Kentucky, Bill Huizenga of Michigan and French Hill of Arkansas in a letter to Gensler pressed for answers on why the SEC asked for public comment on whether climate transparency rules should apply to private firms.

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Markets

STOCKS EDGE HIGHER — AP’s Damian J. Troise and Alex Veiga: “Stock indexes edged higher on Wall Street Wednesday afternoon, regaining their footing after a bout of choppy trading earlier in the day. The S&P 500 rose 0.2 percent as of 2:19 p.m. Eastern after having been down 1.3 percent earlier.

“Gains in technology stocks and companies that rely on consumer spending helped offset losses in health care, energy and other sectors. Still, about 57 percent of stocks in the benchmark index were down, and it has risen or fallen more than 1 percent on each of the past four days.”

AS THE DEBT DEFAULT LOOMS, WHITE HOUSE WARNS OF FINANCIAL CRISIS — NYT’s Jim Tankersley: “As Washington dickers over raising the debt limit, the White House is offering a sober take on the real-world impact of default. If lawmakers fail to raise the federal debt limit before the government runs out of money to cover its bills, it could set off a global financial crisis that the United States would be powerless to confront, White House economists warn in a report released on Wednesday.

“’A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge,’ officials at the White House Council of Economic Advisers warned. ‘Employers around the world would likely have to begin laying off workers.’”

Investors don’t know what to do with the debt ceiling anxiety — Bloomberg’s Alex Harris: “Treasury bill dislocations waned quickly on news that Senate Minority Leader Mitch McConnell is offering Democrats a short-term deal to raise the debt ceiling through November. That means investors are befuddled as to where a possible new drop-dead date lies on the curve.

“The yield on the Oct. 21 maturity, which earlier traded around 0.16 percent, dropped by as much as 8.25 basis points to 0.0475 percent. Those maturing in the end of October are still yielding more than securities due earlier and later. Investors had been shying away from bills due in late October and early November — viewed as most at risk of delayed payment”

BOND INVESTORS AREN’T BUYING CRYPTO CRAZE — WSJ’s Matt Wirz: “Bond markets held two informal referendums on cryptocurrencies recently. The results weren’t pretty. El Salvador’s government bonds nosedived in mid-September after the Central American nation became the first country to adopt bitcoin as a national currency. A few days later, cryptocurrency trading platform Coinbase issued $2 billion of corporate bonds, some of which have since lost about 4.5 percent.”

Fly Around

IMF SEES INFLATION SUBSIDING IN 2022 — Reuters’ David Lawder: “The International Monetary Fund said on Wednesday that headline consumer price inflation should peak this fall and recede to pre-pandemic levels by mid-2022, but risks remain that shortage-driven inflation spikes could prove more persistent, unanchoring expectations.

“The IMF’s baseline forecasts for advanced economies shows headline inflation peaking at 3.6 percent in the fall of 2021 and declining to about 2 percent by mid-2022. Emerging market and developing economies will see inflation declining to about 4 percent next year after peaking at 6.8 percent this fall.”

IMF BOARD TO MEET AGAIN ON GEORGIEVA REVIEW ON FRIDAY — Reuters’ Andrea Shalal and David Lawder: “The International Monetary Fund's executive board plans to meet again on Friday after interviewing Managing Director Kristalina Georgieva over claims that she pressured World Bank staff to alter data to favor China in her previous role, a source familiar with the deliberations said.

“A spokesperson for the board said only that it would come together "soon" to discuss the matter but did not give a day. ‘The Executive Board remains committed to a thorough, objective, and timely review and expects to meet again soon for further discussion,’ the spokesperson said.”

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