Evening thread: Fitch puts U.S. AAA credit on “rating watch negative” as House prepares to vote

posted at 7:21 pm on October 15, 2013 by Allahpundit

The House was supposed to vote tonight on its fig-leaf “last chance” bill, but just as I’m writing this news is breaking that it might not happen. I can only assume that means Boehner knows he doesn’t have the votes and doesn’t want to invite a humiliation on the House floor with the Senate watching. For what it’s worth, both FreedomWorks and Heritage Action came out against the leadership’s bill tonight so there’s not even a shred of conservative cred to be had here for members in voting for it. Where that leaves us is unclear; maybe Boehner’s ready to abandon the fig-leaf “last chance” and finally bring a clean-ish short-term debt-ceiling hike to the floor. Nothing to lose by doing so, really: Per John McCormack of the Standard, the House bill has already been further watered down since this morning so there’s no point in hanging onto whatever meager concessions remain.

Bye-bye to the anti-fraud provisions, which were mostly for show anyway given the way the House drafted them. Here’s the state of the “defund” effort, then, via Byron York: “They haven’t repealed Obamacare, haven’t defunded it, haven’t delayed it for a year, haven’t delayed the individual mandate, haven’t delayed the penalty for the individual mandate — in other words, they haven’t accomplished any of the goals they embraced at the beginning of the continuing resolution fight. Even after a partial shutdown of the government, now in its third week, all of the group’s goals remain elusive.”

And now, says the rating agency Fitch, time’s up:

Fitch Ratings has placed the United States of America’s (U.S.) ‘AAA’ Long-term foreign and local currency Issuer Default Ratings (IDRs) on Rating Watch Negative (RWN)…

- The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures. The U.S. Treasury Secretary has said that extraordinary measures will be exhausted by 17 October, leaving cash reserves of just USD30bn. Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.

- Although the Treasury would still have limited capacity to make payments after 17 October it would be exposed to volatile revenue and expenditure flows. The Treasury may be unable to prioritise debt service, and it is unclear whether it even has the legal authority to do so. The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens – all of which would damage the perception of U.S. sovereign creditworthiness and the economy.

- The prolonged negotiations over raising the debt ceiling (following the episode in August 2011) risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S. This “faith” is a key reason why the U.S. ‘AAA’ rating can tolerate a substantially higher level of public debt than other ‘AAA’ sovereigns.

The good-ish news, if there is such a thing amid another total failure of GOP brinksmanship, is that the latest poll from Pew is less depressing for Republicans than the WSJ/NBC poll last week. The split here on who the public blames is just 46/37 between the GOP and Obama; in fact, despite being seen by a majority as more extreme in its positions, the GOP leads the Democrats on the questions of who’d do a better job dealing with the economy and managing the government. (On the other hand, Obama’s job approval is 43/51. Congressional Republicans’ is 20/72.) That’s further evidence that this whole sorry episode, for all the media sturm and drang over it, will likely do little to hurt the GOP in the midterms — provided of course that we don’t hit the ceiling on Thursday. Extraordinary economic episodes could produce extraordinary electoral outcomes.

Within the last five minutes, Robert Costa of NRO has reported that tonight’s vote is indeed canceled because Boehner doesn’t have the votes. Consider this your thread, then, to comment on what, if anything, comes out of the Senate as a substitute. That’s Boehner’s next agonizing challenge — does he bring a Reid/McConnell bill to the floor and pass it with mostly Democratic votes or does he offer a clean short-term debt-ceiling hike and pass that with (likely) bipartisan support, with Reid then left to decide whether to pass it in the Senate or risk default by rejecting it? One closing thought here: If the point of all this from Democrats’ perspective was to teach the GOP a lesson about not using shutdowns and the debt ceiling as leverage for policy concessions, I’m … pretty sure that that lesson has now been learned. It might have been learned in different ways — e.g., tea partiers may conclude that what they need is a change of Speaker, not a change of tactics — but right now the thought of another round of brinksmanship and RINO/tea party recriminations makes me feel like Alex in “A Clockwork Orange” hearing Beethoven after the Ludovico technique. That is to say, I don’t think Reid needs to worry about sending the wrong message if he accepts a token GOP concession or two in exchange for raising the debt ceiling. Everyone knows who lost. Boehner won’t try this again soon.

Update: A painful quotation from Pelosi, not because it’s false but because it isn’t: “The House has a different idea and that is holding up the works a bit and I hope not putting a chilling effect on what is going on in the Senate… Perhaps the Speaker just needs to humor his troops so they can sow their oats and then get to the responsible place.” That’s what this has been about from the beginning, letting tea partiers make a doomed-to-fail stand to signal their implacable opposition to ObamaCare before the rest of the caucus is forced to grit its teeth and raise the debt ceiling. The whole thing was kabuki.

Update: To repeat a point from this post, if you’re looking for a silver lining here, it’s that you may very well end getting a delay of ObamaCare anyway — not because the GOP forced it but because it’s the only way to prevent a total insurance-industry catastrophe at this point. Here’s a bit of anecdotal evidence that comes from, I kid you not, a diarist at the Daily Kos:

My wife and I just got our updates from Kaiser telling us what our 2014 rates will be. Her monthly has been $168 this year, mine $150. We have a high deductible. We are generally healthy people who don’t go to the doctor often. I barely ever go. The insurance is in case of a major catastrophe.

Well, now, because of Obamacare, my wife’s rate is gong to $302 per month and mine is jumping to $284.

I am canceling insurance for us and I am not paying any fucking penalty. What the hell kind of reform is this?

Oh, ok, if we qualify, we can get some government assistance. Great. So now I have to jump through another hoop to just chisel some of this off. And we don’t qualify, anyway, so what’s the point?

Welcome to utopia, buddy. Hand over your wallet.


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