Fisher Investments Editorial Staff

As Good as Congress Gets

By, 12/29/2011

Recently, Treasury officials indicated that as soon as Friday, the US’s 75th Treasury Secretary (on the 44th President’s behalf) may officially request the 112th Congress lift the debt ceiling for the 105th time since 1917.

August’s heated war of words between Republicans and Democrats over the 103rd increase (resolved at the last minute, as usual) is likely still fresh in folks’ minds. But you could be forgiven for not recalling the fall’s comparatively quiet 104th. In each case—and for the upcoming—our earlier thoughts regarding the debt ceiling apply: It’s not about reducing or increasing debt, which are budgetary measures. It’s a purely arbitrary marker, a political invention with little economic meaning. Fears of a debt ceiling-triggered default were overstated from the get-go, and of the world’s developed economies, only two—the US and Denmark—have a debt ceiling. So the debt ceiling lacks fundamental meaning, but raising it is often accompanied by hot political rhetoric. However, despite long odds to the contrary, politicians found ways to make the 104th and 105th increases even less meaningful than the 103rd.

August’s resolution amounted to one immediate ceiling boost, but it also necessitated two more through next year’s elections—likely one reason why 2011’s second was so quiet. But there’s more: The agreement truncated the process for the 104th and 105th increases, limiting politicians’ time to stump. The deal essentially operates on negative consent—meaning, Congress has to object once the Treasury requests a new limit. And they have 15 days in which to pass a bill (in both the House and Senate) formally objecting. Then the President would have to sign the objection. President Obama signing an objection to an official administration request seems, well, odd. And highly improbable. Should it come to a presidential veto, overriding it would necessitate two-thirds of Congress agreeing to the objection.

But all that assumes Congress will even get to considering an objection. If one isn’t passed within 15 days, the new limit is approved. And Congress is currently in recess—the House through January 17, the Senate through January 23. (Nice job if you can get it.) Should the Treasury request an increase by Friday, the objection period would expire January 14.

So would Congress return to Washington to vote . . . or just plain yawn? The latter seems more warranted, in our view. It’s possible politicians claim they need to return and attend to the country’s business, but if by business they mean another politically motivated hot-air contest, then thanks, but no. Moreover, the recess could also help remove US tariffs on Brazilian ethanol, due to expire without renewal by the year’s end. New debt limit with little debate plus lower tariffs with scant protectionist rhetoric is about as good as Congress gets, folks.

So it seems unlikely the 105th debt-ceiling increase generates heat like the summer’s debate. But in all likelihood, a 106th will be needed before 2012’s out. And the truncated measures don’t apply then, so some heated deliberation may return. After all, one permanent fix—a bill seeking to kill the debt ceiling—has only four co-sponsors at present. An unsurprising lack of support, considering the debt ceiling’s long history of grandstanding sure makes it seem like politicians enjoy the theatrics.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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