As I write this note the House has gone through 11 ballots and still has no Speaker. Rumors continue of some deal that will get Kevin McCarthy the 218 votes he needs to be elected Speaker. At this point no real alternative has stepped forward and McCarthy seems to have dug in for the very long haul.
Regardless of who eventually becomes House Speaker, the fight this week has demonstrated the challenge House Republicans will have governing, and there are some very important votes they will need to navigate.
The issue that could have the most impact on markets, and on which I will be writing in future weeks, is the need to eventually increase the debt ceiling for the US Treasury. Indeed one of the reported demands of the NO votes against McCarthy is that he oppose raising the debt ceiling.
In December of 2021 Congress passed and Biden signed a $2.5T increase in the debt ceiling, making the new ceiling $31.4T. As the huge cash flows of the US Government are so uncertain, no one knows exactly when the new ceiling will be reached. The Treasury Department, which issues and manages the debt, has not made a determination as to when the ceiling will be approached. The process to increase the ceiling begins with the Treasury Secretary notifying the leaders of Congress that action is needed. At some point, when Congress does its usual delay, the Secretary gives Congress a “drop dead” date.
Needless to say, the inability of the US Government to raise money, pay off its debt, and pay bills has huge negative consequences for both the US and the global economy. It can increase the US Government’s cost of funds and raises questions about the role of the US dollar as the world’s reserve currency.
In addition to the debt ceiling, by October 1, the Congress needs to pass legislation to keep the government funded for the new fiscal year. Under past Republican Congresses, agreement was a challenge and the nation faced partial shutdowns of the government.
Not passing regular legislation can be handled but the debt ceiling and budget are must-pass bills. Passing them is the role of the majority, and at this point the fight over the next Speaker has raised some real caution flags.