Goldman Chimes In: A Deal May Be Delayed Until The Weekend
So much for all the "priced in" hope. At this point a delay past October 17 looks inevitable. But it's ok - despite what all the fearmongers have been saying, the world will not end on October 18, or 19, or later (which as we said earlier would only embolden the GOP to demand much more, until such time as the market really does crash), because as Goldman admits: 'missing the deadline by a few days would probably be manageable." In short, it seems that no deal by October 17 is now a, well, done deal.
From Goldman's Jan Hatzius
Competing Debt Limit Plans Are Similar But Might Delay Enactment
BOTTOM LINE: The House and Senate now have competing debt limit increases, which both extend the debt limit to February 2014 and reopen the government through January 2014, but differ on details. The differences are not enough to block enactment of a debt limit increase, but could delay enactment past October 17 given the procedural timelines in each chamber of Congress. That said, the fact that the proposals are so similar implies that a final agreement is close at hand.
1. The Senate had nearly reached agreement on the debt limit… The agreement had not been formally released but Senate leaders had been in the final stages of working out a deal that would reopen the government through January 15, 2014, at the same spending level in effect prior to the shutdown, and would extend the debt limit through mid-February. It includes minor technical changes to the Affordable Care Act ("Obamacare") and would establish a formal conference committee on the budget between the House and Senate to work out a broader fiscal agreement ahead of the next deadline. This negotiation would be expected to focus on replacing some of the cuts under sequestration--the next round of cuts takes effect January 15, 2014--with the budgetary effects offset with savings from other areas of the budget, spread over ten years.
2. …But the House may attempt to pass its own deal. House Republicans may put forward their own version of the debt limit bill instead. Theirs would take the basic components of the Senate's bill but would add a two-year delay of the medical device tax and a cancellation of subsidies under Obamacare for members of Congress. These provisions appear to be aimed at ensuring adequate Republican support in the House while still having a possibility of being adopted in the Senate (with these items, the House plan will now look broadly similar to the bipartisan plan discussed in the Senate over the weekend). There is still some uncertainty as to whether there will be adequate support in the Senate, or even the House, for this bill, however; House Democrats seems inclined to oppose the bill, as does the White House, and it is unclear whether there is enough support among House Republicans alone to reach a simple majority of 217 votes.
3. A deal could still be enacted by October 17, but there are reasons to think it could go a little longer. First, although Congress has taken the October 17 deadline surprisingly seriously, the Treasury will still have funds after that date, and Congress knows this. Second, if the House amends the Senate bill or passes its own instead, this will delay enactment. Third, the Senate could present a procedural obstacle if even one member objects, since consideration can take as long as five days in that chamber. Fourth, if the House is eventually forced to take the Senate plan for a lack of viable alternative, Republican leaders are unlikely to want to hold that vote until the deadline, if not later. There is still a chance Congress will manage to get the debt limit raised by October 17, but a resolution later this week or even this coming weekend also appears possible.
4. Congress needs to raise the debt limit by October 17 to avoid disruptions, but missing the deadline by a few days would probably be manageable. The Treasury will lose its ability to borrow on October 17 and will have to rely on its cash balance. The Treasury market has already seen disruptions from the debt limit debate, and going past the October 17 deadline is likely to exacerbate those and could deal another blow to confidence. That said, the practical implications of going past October 17 are manageable. Treasury settles several auctions on October 17. $87bn in 3-month, 6-month, and 12-month bills have already been announced. It downsized its auction of 4-week bills, announced this morning, to $20bn from $30bn last week. With $120bn in bills maturing October 17, this will result in a greater-than-expected pay down of $13bn in debt. As of October 10 (the most recent data available) the Treasury had a cash balance of $36bn. The Treasury has projected that it will have a $30bn cash balance as of October 17, though this morning's announcement might reduce that somewhat. At this point we estimate that the Treasury should have at least a $10bn cash balance through late next week. That said, given the volatility in the Treasury's daily cash flows, as the Treasury's cash balance dwindles the risk of a failure to make scheduled payments increases.
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