Last week Treasury Secretary Yellen sent the Congressional leadership a letter advising them that the US will hit the statutory debt ceiling this Thursday, January 19^th. In the letter the Secretary informs Congress that, like her Democratic and Republican predecessors, she will start using the “extraordinary measures” approved by Congress to avoid defaulting. While no “drop dead” date was given, Yellen told Congress that the extraordinary measures should hold off any potential government default until at least June. Here is a link to the letter.

The Secretary said that US Government cash flows are very difficult to predict and hence she will keep Congress informed as the Department is able to better gauge the eventual date when an increase in the debt ceiling will be needed.

The challenge in the months ahead is that passing a debt ceiling increase is the responsibility of the majority party, placing a substantial burden on Speaker McCarthy. Over the past several years Congress has followed two different approaches to the debt ceiling: one is to raise it to a specific amount as was done in December of 2021 when the ceiling was increased by $2.5 trillion to $31.381 trillion. On other occasions, Congress has suspended the ceiling for a specific period of time; this has the political advantage of not creating a headline that a Representative or Senator increased spending by trillions of dollars.

The debt ceiling is regularly demagogued as being like the family credit card and allows for increased government spending, when in fact it merely allows the Treasury to pay bills that have already been incurred. As has been written by many, not increasing the debt ceiling is not really an option, and would cause a global financial crisis if the US can’t pay bonds, notes and other bills that come due. Government payments run through the entire economy from social security and Medicare to paying our troops and school lunch programs.

Some Republicans have suggested that the direst consequences of a US Government default could be mitigated by prioritizing payments, giving debt payments the top priority. However, this has been suggested before, and in the past the Treasury has said a plan to prioritize payments isn’t feasible with the massive cash flows that go through the US Government.

Obviously, this will be one of the most important market related stories in DC in the coming months and I will be following it very closely.

State of the Union

On Friday the Speaker wrote a letter to the President inviting him to appear before a joint session of Congress on February 7 to deliver the annual State of the Union address. It will be a night of high drama as it will be Biden’s first appearance before a divided Congress. From the budget to Ukraine, there will be much for the President to address.

House Starts Business

With the drama over the Speaker’s vote complete, the House got down to its basic business of organizing Committees and passing high priority Republican bills. High on the list was a proposal to create a new Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party. Many Democrats joined their Republican colleagues in voting for the new Select Committee and the final vote was a bipartisan 365 to 65. Former Speaker Nancy Pelosi was among the Democrats supporting the measure.

Last week the House also voted to block oil from the country’s emergency stockpile from going to China. The bill would prohibit the Energy Department from selling oil from the Strategic Petroleum Reserve to companies owned or influenced by the Chinese Communist Party. It passed easily, 331-97, with 113 Democrats joining unanimous Republicans in support.

These votes show how Democrats will act as they move from the majority to the minority, selectively looking for bipartisanship. It will be an interesting dynamic with Republicans holding only a five-seat majority. The Democrats may have several cards to play in the coming months.

Hearings

The real power of being in the majority for Republicans is controlling the House Committees. With respect to the power of a Committee Chair, little has changed from my days on Capitol Hill. A Committee Chair has absolute control over the Committee agenda. The new Republican majority may not get many of their bills passed by the Senate and signed by President Biden, but they can make headlines and put pressure on the Administration through public hearings.

Committee chairs have given notice that they plan to hold hearings on hot button issues.

Weaponization of the Justice Department: This is aimed at the attacks on former President Trump including the FBI raid on his personal residence in Palm Beach. While Democrats strongly oppose the special committee and its work, unlike the Republican strategy with respect to the January 6^th Committee where they boycotted the proceedings, Democrats plan to fully participate in the Justice Department hearings. The discovery of secret documents at the home and post-VP office of President Biden has added a bipartisan note to the process. It should make for dramatic television.

Southern Border: This is an issue Republicans believe is a campaign winner as the evening news is full of reports of chaos at the border and charges of drugs and human trafficking running wild at the border. There is bipartisan agreement that our current policy is broken.

Afghanistan withdrawal: Americans watched in horror while American troops were hastily withdrawn from Kabul, leaving many Afghans who helped US forces behind. While there was widespread criticism, Congressional Committees controlled by Democrats didn’t investigate. Republicans are likely to hold hearings and call key players in to testify.

Hunter Biden: I add this to the list though it has no policy implications but has become a favorite topic for Republicans. Some leaders of the party are skeptical of the public interest in Hunter’s laptop and are concerned that hearings on the subject would be a distraction from the policy issues mentioned above. Time will tell if the story has staying power.