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Doubling Up Deadlines

 January 25, 2013 12:22 PM


Thursday, the House of Representatives passed a bill on the debt ceiling. Shortly thereafter, Senate leadership and the White House confirmed they'd attach their approvals. Meaning, unless something unforeseen happens, a debt ceiling deal should be in place by February 1. Save the confetti—the resolution merely trades one deadline for four more down the road. In other words, politics as usual. Why solve a problem when you can instead create more wedge issues?

Since breaching the prior debt ceiling on December 31 (probably—government accounting isn't perfect), the Treasury has financed the Government's bills through "extraordinary measures" (i.e., shuffling the accounting deck a bit)—expected to be exhausted by mid-February. Thursday's agreement isn't a new debt ceiling, but rather, an agreement to ignore it until May 19, at which point the debt ceiling will be set at whatever level of debt the Treasury has incurred. Then, the extraordinary measures likely kick in, setting up the next round of debates in July or August—or whenever they (rather arbitrarily) set the debate.

[Related -Gold Slides On Perfect Storm For Dollar]

Then, there are a few other self-imposed deadlines in the deal. Absent a new budget deal by March 1, automatic across the board cuts (sequestration) go into effect. Recall, the Budget Control Act of 2011's "super-committee" failed to agree to deficit reduction of at least $1.2 trillion over 10 years, and automatic cuts should have gone into effect January 2. But in the fiscal cliff deal, cuts got kicked down the road. Of course, there's nothing saying Congress can't or won't simply move this date out in the future again.

[Related -Forward Guidance Now A Nightmare For Fed.]

Assuming Congress can-kicks the sequestration deadline to some later date, their next deadline is March 27, when Congress's resolution appropriating budget funding at FY2012 levels expires. Absent a new resolution, a series of individual appropriations bills or a full budget, federal funding will cease across the board. We're not sure why this year the deadline is so important. After all, Congress hasn't passed a budget in four years. We wouldn't be surprised if Congress blinked and simply resolved to extend their previous resolution rather than actually pass a budget. (The probability politicians let federal funding cease, rounded to the closest number, is zero.)

One aspect of Thursday's bill we rather like: The suspension of Congressional pay should each chamber not pass a budget by April 15. Not because we're particularly for or against one side's budget over another's. But because we rather like the notion of performance pay for politicians. However, we doubt they stick to it. And even then, it's only a suspension. All of their back-pay gets put in escrow until the end of 2014 or whenever they actually pass a budget. Moreover, various parties (in Congress and elsewhere) have raised constitutional challenges to this clause in the bill, meaning this particular situation may never really come to pass. A shame, in our book.

So Thursday's debt deal removes the immediacy of debt ceiling raise, but this issue very likely remains unresolved, possibly forever. And some debates will occasionally be more heated than others. But there's simply no chance politicians will allow a US default, and the US fiscal situation isn't truly imperiled by these arbitrary, easily moved, extended, prodded or poked markers.

source: Market Minder
Disclaimer: This article reflects personal viewpoints of the author and is not a description of advisory services by Fisher Investments or performance of its clients. Such viewpoints may change at any time without notice. Nothin herein constitutes investment advice or a recommendation to buy or sell any security ot that any security, portfolio, transaction or strategy is suitable for any specific person. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
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