Market Takes Leg Lower As Treasury Supports Use Of "McConnell Provision" In Debt Ceiling Fight

Tyler Durden's picture




 

As the Fiscal Cliff discussions get progressively more acrimonious, more people are being reminded that the new and improved $16.4 trillion debt ceiling, which the US will breach in a few days, is just as important, and just as much at an impasse. Which is why the Treasury just opined on the issue, by openly supporting the "McConnell Provision" and in doing so may have made any future Cliff/Ceiling discussions more difficult as the US has effectively invoked the nuclear option, aka a Presidential Veto to effectively elimiante the debt ceiling, something which will antagonize the GOP to such an extent any potential Fiscal Cliff deal may become unfeasible.

From the Treasury's blog:

The Budget Control Act enacted in August of 2011 included a provision, authored by Senate Republican Leader Mitch McConnell, that provided for expedited votes in both houses of Congress on legislation to disapprove debt limit increases requested by the President. Congress could block an increase in the debt limit via enactment of the disapproval legislation. However, if disapproval legislation was not enacted, the requested debt limit increase took effect. The debt limit was increased three times pursuant to Senator McConnell’s mechanism.

...

The McConnell Provision was designed to preserve the authority of Congress to disapprove increases in the debt limit, while at the same time making it possible for needed increases in the debt limit to take effect.  The Administration supports extension of Senator McConnell’s mechanism in order to prevent a repeat of the 2011 debt limit ordeal and to ensure that the threat of default does not put the U.S. economy or the creditworthiness of the United States at risk in the future.

The market is hardly happy that the already record polarity in Congress is about to get even worse as a result of this hardline stance, and just took another big leg lower.

 

From The US Treasury's blog:

Taking the Threat of Default Out of the Debt Limit

On Sunday, December 2, Secretary Geithner appeared on NBC’s Meet the PressCBS’ Face the Nation, ABC’s This Week, FOX News Sunday, and CNN’s State of the Union and made the case for the Administration’s balanced approach to reducing the deficit and strengthening economic growth.

Along with this balanced plan to reduce the deficit, Secretary Geithner indicated that the Obama Administration supports extending the “McConnell Provision” regarding the debt limit -- a part of last year’s Budget Control Act:

Secretary Geithner on Meet the Press: “We made a very sensible suggestion, and let me describe what that is.  What we propose to them is they extend what’s called the McConnell provision.  This was a solution Senator McConnell offered last summer, which was enacted -- summer of 2011 -- which was enacted into law, supported by Republicans.   And the way that works is the President would have the obligation periodically of requesting an increase in the debt limit, and then Congress would have the chance, then, to express its views on the merits of that proposal by disapproving that. And then the President would have to decide, if a bill came to his desk, about whether to veto that or sign it.   Of course, he’d veto it in that context. And the virtue of that mechanism proposed by Senator McConnell, a man of impeccable conservative credentials, is to make sure that the country is not left at risk of periodic threats of default.   It’s a very good idea.   It was a Republican idea.   And we’re suggesting they extend it.”

The McConnell Provision received broad bipartisan support last year. In fact, it was one of those rare policy proposals that received support from both the Wall Street Journal and New York Times editorial boards.

And for good reason. Extension of the McConnell Provision would lift the periodic threat of default from the U.S. economy and remove politics from future debt limit debates, while preserving Congress’ essential role in spending, revenue and borrowing decisions.

Under the McConnell Provision, Congress would retain its authority to disapprove any increase in the debt limit.  In fact, the provision was specifically designed to permit increases in the debt limit only after both houses of Congress were given the opportunity to vote on whether to approve or disapprove any increases.

Extending the McConnell provision would not permit the executive branch to spend money or collect revenues without prior congressional approval. Indeed, the debt limit does not authorize new spending commitments; it simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have approved in the past.

Background on the McConnell Provision 

The Budget Control Act enacted in August of 2011 included a provision, authored by Senate Republican Leader Mitch McConnell, that provided for expedited votes in both houses of Congress on legislation to disapprove debt limit increases requested by the President. Congress could block an increase in the debt limit via enactment of the disapproval legislation. However, if disapproval legislation was not enacted, the requested debt limit increase took effect. The debt limit was increased three times pursuant to Senator McConnell’s mechanism.

How the McConnell Provision Works 

A congressional debt limit disapproval process consists of the following steps:

  • Once the debt subject to the statutory debt limit is within $100 billion of the limit, the President may request an increase in the debt limit by sending a written certification to Congress that the outstanding debt is within $100 billion of the debt limit, and that further borrowing is needed to meet existing commitments. 
  • Congress has 15 days to deny the request, through enactment of a Joint Resolution of disapproval.
  • In both the House and the Senate, consideration of the Joint Resolution of disapproval is governed by expedited procedures.
  • If both Chambers pass the Joint Resolution of disapproval:
  •  
    • It is sent to the President for veto or signature.
  •  
    •  
      • If the President vetoes the Joint Resolution, the Joint Resolution is returned to Congress.
  •  
    •  
      • If the President’s veto is overridden by Congress, which requires a 2/3 vote of each Chamber, then the debt limit increase request is denied.

If a Joint Resolution of disapproval is not enacted within 15 days then the debt limit is increased pursuant to the President’s certification.

Summary

The McConnell Provision was designed to preserve the authority of Congress to disapprove increases in the debt limit, while at the same time making it possible for needed increases in the debt limit to take effect.  The Administration supports extension of Senator McConnell’s mechanism in order to prevent a repeat of the 2011 debt limit ordeal and to ensure that the threat of default does not put the U.S. economy or the creditworthiness of the United States at risk in the future. 
Jenni LeCompte is the Assistant Secretary for Public Affairs at the U.S. Department of the Treasury
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Wed, 12/05/2012 - 11:56 | 3035767 TruthInSunshine
TruthInSunshine's picture

Paging Timmmmmmay "The U.S. Will Never Be Downgraded" Geithner. Maybe the 2nd time will be the charm (not).

Wed, 12/05/2012 - 12:04 | 3035810 icanhasbailout
icanhasbailout's picture

Boehner just punked himself in a big way. He just did a purge of fiscal conservatives from committees to help push through a deal with the admin, and to his great surprise only did the Obama admin react with the most hardline stance it had available.

Wed, 12/05/2012 - 12:16 | 3035852 Bananamerican
Bananamerican's picture

"aka a Presidential Veto to effectively elimiante (sic) the debt ceiling"

Gold (not Goldman) Bitchez!

Wed, 12/05/2012 - 12:31 | 3035924 MillionDollarBogus_
MillionDollarBogus_'s picture

The Dems should just say no to anything McConnell proposses...

Wed, 12/05/2012 - 16:00 | 3036214 SafelyGraze
SafelyGraze's picture

warning: adult-rated conversation snippet

readers offended by pillow talk should stop here.

--

bo: you want more?
sheep: no

bo: I like it when you say no
sheep: please stop

bo: did you say 'harder'?
sheep: that hurts

bo: louder, sheep
sheep: enough

bo: that's better
sheep: ouch

bo: ouch *what*
sheep: ouch .. sir?

bo: that's more like it
sheep: no .. stop .. ouch ..

bo: that's what I want to hear
sheep: help

bo: put this on
sheep: please no 

bo: that's right, sheep .. beg for it
sheep: make it stop

bo: what kind of music do you like 

 

Wed, 12/05/2012 - 12:04 | 3035812 holdbuysell
holdbuysell's picture

US(A)

Wed, 12/05/2012 - 12:21 | 3035882 common_sense
common_sense's picture

Afraid of fiscal cliff??  Why??  Bernike , Berny, is printing money, printers are ok, working hard, but still working. And if printers are ok, employment is safe.... so, everything ok. Capitalism is easy, easy, problems are solved printing money, i dont see any problem in capitalism. Rich people are getting richer, and poor people are getting poorer, so everything ok. Capitalism is nice. Only if you are rich, of course. For the rest, we are full of shit, but nobody cares, so, capitalism is really nice. And capitalism is only possible with politiciens, of course. Capitalism without politiciens wouldnt be capitalism, it would be too much nice...

Wed, 12/05/2012 - 12:12 | 3035840 Slewburger
Slewburger's picture

What a joke. The time period of these requests by fearless leader will decrease until he is granted ability to do so without Congress.

Right now its like a 60 Hz AC power supply, Obama is going DC bitchez!

Wed, 12/05/2012 - 12:56 | 3036064 NotApplicable
NotApplicable's picture

You have to admit, they're doing a fine job of navigating us over the falls (as in, nothing seems to weird to consider anymore given the circumstances).

Never mind the rocks below. They won't hurt. Honest!

Wed, 12/05/2012 - 13:24 | 3036184 ElvisDog
ElvisDog's picture

It took me awhile to understand what this was all about, but if I understand correctly as long as the Dems control at least one house of congress the president can increase the debt limit any time he wants by as much as he wants. Is that correct? Because unless both houses of congress deny the request it goes through. Why doesn't Obama request a $6T extension of the debt limit and then he doesn't have to worry about it again for the rest of his 2nd term.

Wed, 12/05/2012 - 13:37 | 3036230 youngman
youngman's picture

6 Trillion....I bet he hits that in 2014

Wed, 12/05/2012 - 22:15 | 3037953 StychoKiller
StychoKiller's picture

"Giving money and power to politicians is like giving whiskey and the car keys to teenagers!" -- P.J. O'Rourke

Wed, 12/05/2012 - 12:38 | 3035981 dadichris
dadichris's picture

the sooner the better for downgrade in my book - just perpetuating a corrupt power structure

Wed, 12/05/2012 - 13:27 | 3036196 ElvisDog
ElvisDog's picture

But with the Federal Reserve buying up 60-70% of all new debt issuance, what effect does a downgrade have? The Fed is not going to let a downgrade change its course of action. Face it, with the debt ceiling limit a non-factor with this McConnell ammendment we are going down the deficit-spending path for as long as we can. And in my opinion, it will be years before anything breaks down.

Wed, 12/05/2012 - 11:57 | 3035776 DoChenRollingBearing
DoChenRollingBearing's picture

Why can´t everyone see that it´s the spending stupid?!

Sometimes I get the feeling that our public servants do not serve us...

Wed, 12/05/2012 - 12:02 | 3035799 Augustus
Augustus's picture

Everyone does see that.

The pols particularly know that it is the spending that gets the stupid to vote for them.

Wed, 12/05/2012 - 12:07 | 3035819 TomGa
TomGa's picture

Only sometimes ??

Wed, 12/05/2012 - 12:09 | 3035830 Toolshed
Toolshed's picture

"Sometimes I get the feeling that our public servants do not serve us..."

Sometimes? Is that subtle sarcasm? The only time our "public servants" serve us is on that rare occasion when their interests align with ours. You know, like during the run-up to an election.

 

Wed, 12/05/2012 - 12:58 | 3036073 NotApplicable
NotApplicable's picture

And even then they're feeding you your own ass.

Round Steak, it's what's for dinner.

Wed, 12/05/2012 - 12:15 | 3035848 forwardho
forwardho's picture

Everyone KNOWS its the spending. They don't know what to do with all the PEOPLE that money is spent on.

47 million starving ex-foodstamp participants, 67 million ex-S.S. retirees,.....Ad infinitum.

If the money train stops, this game is over. They will not stop till far, far beyond the end of the tracks.

Wed, 12/05/2012 - 12:36 | 3035972 viahj
viahj's picture

but don't forget the MIC, foreign aide and interest on the debt...all huge ticket items

imagine a huge mil downsizing and bringing home a lot of battle hardened troops with no jobs, they are not that stupid.

Wed, 12/05/2012 - 12:31 | 3035930 game theory
game theory's picture

Public "servants"...it is such a misnomer. Real estate in DC in 2012 is in a fresh bubble...which is a result of DC sucking all the cash away from everyone else in the country to prop us their lifestyles.  And defense contractors have accelerated the pulling of jobs back to VA and MD from other states because they need to keep their crony friends satisfied.  The fiscal cliff is a farce.  Politicians will never stop taking money for themselves and their friends...because they are addicts...and there is no way for anyone to stop them.  Only discipline in the debt market will fix things...and that can only happen when the fed chooses to stop manipulating that market. And I don't see that happening anytime soon. 

Wed, 12/05/2012 - 12:45 | 3036016 Money Squid
Money Squid's picture

Public servants work in a system controlled by the same idiots that are causing the problems. How many times have heard about some loser being appointed to a high-level government job for which they have no experiece (Michale "Heckava Job" Brown) only to totally screw the place up? This is by design and that is their function even if the tard that is hired does not know he is a total failure. The best way to prevent governmet oversight is to emplace a total loser who is gauranteed to screw everything up, especially when the idiot has a very high opinion of himself. Let's recall a few names Sara Palin, James Watt, Dan Quale, W., Tim Geitner, Ben Bernanke, Allan Greenspan, Haley Barbour. You will find a total loser is in place just in time to not do something, stop something, or screw something up. Its the best way to get something done, or not, and cover your tracks.

Wed, 12/05/2012 - 13:36 | 3036206 ElvisDog
ElvisDog's picture

Why can´t everyone see that it´s the spending stupid?!

You know why? Because for the moment, Obama is correct. Deficits don't matter, and there are (currently) no consequences from maintaining or increasing the status quo of nice government benefits for almost everyone. The time horizon of the American public has shrunk to the here and now. They support Obama because he is the defender of the status quo.

And much to my surprise, I find myself supporting this approach. I'll use a Titanic analogy. The ship has hit the iceberg and is going to sink no matter what. The ship has promised the passengers free champagne and oysters as long as the ship stays afloat. If you're a passenger on that ship, wouldn't you want to postpone the sinking as long as possible? Wouldn't you want to drink the champagne for a couple more hours before the plunge into the icy ocean.

Wed, 12/05/2012 - 13:32 | 3036212 salvadordaly
salvadordaly's picture

"We all know what to do, we just don't know how to get re-elected after we have done it."

Jean-Claude Junker - 2012

Wed, 12/05/2012 - 12:00 | 3035790 firstdivision
firstdivision's picture

Does this provision also include "buy all FB shares"? 

Wed, 12/05/2012 - 12:00 | 3035792 Al Huxley
Al Huxley's picture

So let me get this straight - this gives Congress the ability to say they 'don't approve of the debt ceiling increase' but then the debt ceiling increases anyway, just without the approval of Congress?  And the main reason to do this is 'the only way to avoid the risk of defaulting on our debt is to be able to perpetually raise the debt ceiling (but with Congress' disapproval!)'?  And this is being generally accepted as sound and valid reasoning by political pundits MSM and the general public? 

Wed, 12/05/2012 - 12:08 | 3035824 supersajin
supersajin's picture

The ultimate shell game!

Wed, 12/05/2012 - 13:00 | 3036084 NotApplicable
NotApplicable's picture

Well, as we all know...

They have to do SOMETHING!!!

Never mind the fact that it is pure plundering.

Wed, 12/05/2012 - 13:56 | 3036319 OneTinSoldier66
OneTinSoldier66's picture

Al,

 

It's so hard and weird to even try and explain it. But I'd say you did a pretty good job. It's just that when trying to explain, a person could end up looking like you'r avatar before, during, and after, the explanation.

Wed, 12/05/2012 - 12:08 | 3035825 fonzannoon
fonzannoon's picture

I hope no one lets this guy get involved. I will leave him nameless because I don't want him dragged into it.

"The fact that we're here today to debate raising America's debt limit is a sign of leadership failure. Leadership means 'The buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit."

 

 

Wed, 12/05/2012 - 12:13 | 3035842 SheepDog-One
SheepDog-One's picture

Gee it sounds almost like the Monetizer in Thief himself Barry Soterro!

Wed, 12/05/2012 - 12:19 | 3035865 Everybodys All ...
Everybodys All American's picture

El Presidente  Zero

Wed, 12/05/2012 - 12:49 | 3036032 Grinder74
Grinder74's picture

BUCK FARACK

Wed, 12/05/2012 - 12:01 | 3035796 lolmao500
lolmao500's picture

Yeah we're only talking NOW about the debt ceiling, but since august 2011, Obama lifted it TWICE by himself because of this rule.

This rule is total garbage and gives more power to the executive.

Wed, 12/05/2012 - 12:19 | 3035869 Al Huxley
Al Huxley's picture

I think you're missing the important point that, even though the debt ceiling increases in perpetuity, it does so with congressional disapproval.  So that makes it ok and not dangerous at all. 

In fact, picking up this line of reasoning has reduced my stress in a lot of areas.  For example, I used to worry about the negative impact excessive alcohol consumption might have on my health, but since my wife regularly registers her disapproval of this, that removes any risk of negative impact, and I can safely drink as much as I want.

Similarly, she can run up her credit card debt as much as she wants, and as long as I register my disapproval, it's all good.  I haven't run that one by the bank yet, but I have to assume that if it works for the govt it should work for me too. 

Wed, 12/05/2012 - 12:01 | 3035797 casey13
casey13's picture

No debt ceiling. Money printing forever. GO TO US CASH and BONDS? 

Wed, 12/05/2012 - 12:21 | 3035876 Bananamerican
Bananamerican's picture

yeah, take one for the team, Casey....

Wed, 12/05/2012 - 12:02 | 3035802 Cognitive Dissonance
Cognitive Dissonance's picture

I support the Tyler provision. Remove the Ponzi supports and see what floats to the top.

<Or sinks to the bottom. Might get a wee bit crowded down there.>

Wed, 12/05/2012 - 12:10 | 3035832 zendome
zendome's picture

Right, just flush the damned toilet already!

Wed, 12/05/2012 - 12:33 | 3035953 Money Squid
Money Squid's picture

a lot of people will be sucked under by the massive current from the collapse. Even if they have the ability to float on their own it will take time for them to free theselves from the down current and all the debris on top of them. When there is a collapse there is a lot of collateral damage.

Wed, 12/05/2012 - 12:06 | 3035803 Stuart
Stuart's picture

Treasury wants to eliminate the debt ceiling,..... and gold is hit again.....  Seriously, except for a handful of people, is there no frickin' intelligent life left on this planet that can grasp the consequences of such a move on the need to continue printing money...?????  Gold should be soring..

Wed, 12/05/2012 - 12:07 | 3035822 yogibear
yogibear's picture

It's being manipulated. You can bet there are big buyers waiting at lower price levels waiting to buy everything in sight. They know what it means.

Wed, 12/05/2012 - 12:25 | 3035895 stormsailor
stormsailor's picture

gold will never "soar".  it can be manipulated and shorted with an infinite trading account.  i believe the only reason it has risen since 2008 was to soak up some of the money supply.  it moved from 480 to 1700 in 4 years, but hasn't moved since.

 

Wed, 12/05/2012 - 12:38 | 3035982 robertocarlos
robertocarlos's picture

If I didn't buy it at $750, why would I buy it at $1750?

Wed, 12/05/2012 - 12:46 | 3036018 Al Huxley
Al Huxley's picture

Yeah, hang onto that line of reasoning.  In an environment of negative real interest rates, perpetually increasing government government debt, and increasingly blatant outright monetization of said debt, the last thing you want to be holding is gold. 

 

Hey, I heard the FED's going to be buying ALL the 10 year issuance now!  Can you imagine what the corresponding shortage in supply to the market will do to the price of USTs?  They're going to the fucking moon man!  Buy all you can now while they're still available, before the FED gets them all!

Wed, 12/05/2012 - 13:05 | 3036097 BraveSirRobin
BraveSirRobin's picture

Maybe gold is getting hit because central banks are dumping due to liquidity problems? Or, they just want the cash. Anyone know who is selling?

Why would they do this? If we are nearing the end of the economic rope, and the central banks realize they cannot print anymore (it would be due to measures of self-interest the prohibits new monetization), then the big deflationary slump sets in, and cash becomes king, and everyone needs to raise cash to pay creditors, meaning they sell anything (includiong precious metals) so they can avoid insolvancy and handing over their assets to the banks.

I know this goes against the grain of what the central banks have been doing. They have been bailing out the financial institutions (in the US case, that means the FED is bailing out its member banks, a clear conflict of interest), but there could come a time when the paradigm shifts, and the adverse prospect of more monetization outweighs the benefits of deflationary collapse. Or, maybe, there comes a time when deflationary collapse is preferable.

When could this be? When they have enough cash on the sidelines to buy up everything at the bottom. Everyone sells - they buy. What the insolvent can't sell, the banks take possion of. Then they own it all with phantom money previously greated from nothing.

Wed, 12/05/2012 - 12:04 | 3035809 Banksters
Banksters's picture

Congress and the Senate can suck on their own cocks and clits.    

 

This fucker is going down, the cast is set.

Wed, 12/05/2012 - 12:57 | 3036067 Grinder74
Grinder74's picture

Actually, she can suck mine and I'll suck hers.

en.wikipedia.org/wiki/Kristi_Noem

Do NOT follow this link or you will be banned from the site!