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.
The CEO of the NASDAQ stock exchange told a Senate hearing today that markets would greatly prefer a longer term deal.