Congress also has a budget vote ahead in September. Block said Sept. 30 is the last day of the current fiscal year, setting up midnight on that day as a new “fiscal cliff,” which could result in a government shutdown if Congress doesn’t vote on funding.
“Half the fiscal cliff is the need to increase the debt ceiling; the other piece is the threat of a government shutdown if Congress does not pass spending bills for the 15 Departments of the government. 2013 was the last government shutdown as the Republican Congress tried to pressure President Obama, it was generally viewed as a big loss for the Republicans,” noted Block.
HSBC chief U.S. economist Kevin Logan points out that the conservative wing of the House, the “Freedom Caucus,” has said they want debt limit increases combined with curbs on spending.
“Republican Congressional leaders have issued assurances that, despite these potential conflicts, the debt ceiling will be raised in a timely fashion. However, they have not indicated how it will be done,” wrote Logan in a note. He said normally Congress attaches the debt ceiling to some legislation that would be voted on favorably.
Block said President Donald Trump could become key in pushing for the debt ceiling raise with members of his own party, especially since some may be facing primary challenges ahead of the 2018 election.
“This is an issue where Donald Trump could really play a very positive role. The political problem with increasing the debt ceiling is Republicans are concerned about someone running in the primary to their right. This is the problem both [Senate Majority Leader Mitch] McConnell and Speaker [Paul] Ryan have in coaxing some people to vote for it,” Block said. “I think Trump has the potential to inoculate Republicans who support him on the debt ceiling.”
Block said he expects Washington to come together and pass the debt ceiling and budget resolution. “You assume so, but I think as Trump could help a lot, Trump could also hurt a lot if he doesn’t listen carefully and say the right thing…and he has said the wrong things on this issue,” he said. “If Trump repeats that we could use a good government shut down, that would not be a positive thing as the day approaches.”
Strategists also said the Republican leadership could reach across the aisle and seek Democratic help if conservatives won’t vote to lift the debt ceiling. Logan said the debt ceiling could also be suspended again.
Block said the last time the ceiling was breached was in 1979, and it ended up with government paying higher interest rates.