On a conference call, Chuck Schumer urged House Speaker John Boehner to renounce the threat to allow a default of the United States’ financial obligations by blocking an increase in the debt ceiling. This threat, even if it’s contrasted with an implicit guarantee to raise the debt limit eventually, could be enough to send the nation’s financial markets into a tailspin. Schumer said that Boehner “must provide unwaivering reassurance to the credit markets.”
Schumer also set a new deadline of July 15 as a drop-dead date to raise the debt limit. The Treasury Department decided on August 2 as the point at which they could no longer manage finances to prevent the debt limit from being reached. But Schumer said that markets would react negatively without an assurance by mid-July. Schumer brought on Roger Altman, former Clinton Treasury Department official and Evercore Partners chairman, to make that case further.
This comes right before Boehner heads to New York to discuss the debt limit issue on Wall Street.
In a speech to the Economic Club of New York in Midtown Manhattan, the Ohio Republican is set to reiterate to leading financial executives that he believes that reforming Medicare should be part of negotiations in raising the debt ceiling, saying that there needs to be “an honest conversation,” because the program is on an “unsustainable path if changes are not made,” according to sources familiar with the speech. Boehner also is expected to advocate for immediate cuts rather than deficit and debt targets preferred by some Democrats.
After his talk, Boehner will take questions from two prominent Wall Street players at the intersection of Washington power: Peter G. Peterson, the private-equity giant who worked for President Richard Nixon, and Observatory Group CEO Jane Hartley, who worked for President Jimmy Carter [...]
Boehner’s public insistence that reforming Medicare stay a part of debt ceiling negotiations could reaffirm a concern among Wall Street types that Republicans are driving a hard bargain on the limit and will take the negotiations up to the last minute. Boehner said last week Congress must now cut trillions, not billions.
As I made clear on Sunday, the Medicare thing is a pose, and not a very convincing one. But clearly Boehner is treating this like a negotiation, and there are potential consequences for that.
The problem is that the Democratic counter-argument to this demand for trillions in cuts from Republicans is to institution this debt trigger, Harry Reid’s idea, which would mandate spending cuts or tax increases if the debt reaches a certain level. Schumer reiterated this as a possibility on the call, while dismissing a pure spending cap that would not allow for tax increases. But all of these global caps are bad ideas, particularly during a demand shortfall. My guess is they would be designed in such a way that the trigger wouldn’t actually be reached, but it’s still a dangerous game. And as a policy prescription it represents a failure to come to terms with what the economy actually needs.