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Debt ceiling and spending decisions

In the week ahead, Congress should have to come up with a budget and raise the debt ceiling or face the twin problems upon returning from their summer recess in September. While the Senate doesn’t go on hiatus until early August, the House is scheduled to end its business Friday.
In the week ahead, Congress should have to come up with a budget and raise the debt ceiling or face the twin problems upon returning from their summer recess in September. While the Senate doesn’t go on hiatus until early August, the House is scheduled to end its business Friday. TNS

There’s nothing like a deadline and debt to focus Congress. Yet, the looming fiscal crisis has become much too routine to merit much concern for investors.

In the week ahead, Congress should have to come up with a budget and raise the debt ceiling or face the twin problems upon returning from their summer recess in September. While the Senate doesn’t go on hiatus until early August, the House is scheduled to end its business Friday.

Make no mistake: This is a fiscal problem with real financial risks.

First, the debt ceiling. For months, the U.S. Treasury has been using accounting maneuvers to avoid maxing out the nation’s borrowing limit. Those efforts may be exhausted by early September. It requires Congress to raise the borrowing limit, and for President Donald Trump to agree, in order for the federal government to continuing issuing IOUs to pay its bills. Without raising the ceiling, the government will be unable to pay bills like Social Security and benefits for veterans.

Second, government spending. The federal budget year begins in October. But if there is no agreement on total spending levels, government spending on discretionary programs is due to drop by about 10 percent. That cutback is a remnant of previous budget fights, designed to demand some fiscal responsibility. It hasn’t worked.

So far, investors have become inured to these kinds of showdowns and deadlines. Major stock indices have been setting record highs and bond market interest rates have been falling.

If House members leave Capitol Hill Friday with no real resolution, it will be one more uncertainty for the Federal Reserve to consider when it meets at the end of July to talk about its target short-term interest rate. Already, the Fed has growing concerns about the sustainability and strength of the U.S. economy thanks to the trade war and global weakness. Investors may have to add congressional gridlock to that list very soon.

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView

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