Countering President Obama’s call for a long-term increase in the nation’s debt ceiling, Senate Minority Leader Mitch McConnell (R-KY) said yesterday that “there’s absolutely no economic justification” for an extended increase:
There’s absolutely no economic justification for insisting on a debt limit increase that brings us through the next election. It’s not the beginning of a fiscal year, it’s not the beginning of a calendar year, based on his own words its hard to conclude that this request has anything to do with anything other than the president’s re-election.
Overshadowing all of the debt ceiling negotiations has the been the possibility of a downgrade in U.S. debt, something the IMF warned today could have a “universally large and negative” impact on the global economy. Investors and the credit rating agencies have made it clear that they prefer a long-term deal, and a source at Standard & Poor’s told CNN that Speaker John Boehner’s (R-OH) debt ceiling plan would probably lead to a downgrade because it would force a second vote on the debt limit several months from now. Bank of America-Merrill Lynch warned in a memo that a “stopgap deal” could have “negative impact on stocks.” The CEO Of PIMCO, meanwhile, said a “short term stop gap compromise” could hurt stock markets and leave the U.S. “extremely exposed” to a credit downgrade.
Even leading Republicans understood this — including McConnell — as their new position is a reversal from just weeks ago when they wanted a long-term deal. Rep. Dave Camp (R-CA), chairman of the tax-writing House Ways and Means Committee, said a shot-term deal “doesn’t give you certainty,” while House Majority Leader Eric Cantor (R-VA) said a stopgap measure would just be “putting off tough decisions.” McConnell himself called for a “very large package that will impress the ratings agencies, impress foreign countries and astonish the American people that we’re actually going to come together.” But that was so last month.