In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Sunday, October 12, 2014

Goldman on 2015: "Potential Renewed Uncertainty around Fiscal Deadlines"

by Calculated Risk on 10/12/2014 11:32:00 AM

A couple of months ago I wrote: Flashback to August 2011 and 2013 (And a hint for 2015). I discussed the policy insanity in 2011 and 2013, and worried about 2015 (this happens in odd years because politicians hope voters will forget).

From Goldman Sachs economist Alec Phillips:

In many policy areas, a shift in Senate control would simply result in a new flavor of the gridlock that has prevailed since the 2010 election. The split between Congress and the White House would still exist and, while Republicans would set the agenda in both chambers if they held a majority, a degree of bipartisan support would still be necessary in the Senate light of the 60-vote threshold necessary to pass most legislation.

The exception would be the annual budget resolution and legislation related to it. The budget resolution sets out annual targets for federal spending, revenue, and debt. More importantly, it can be used to clear a procedural path for legislation that includes policies to reconcile the level of spending, revenue, or debt under current law with the levels in the budget resolution. Such “reconciliation” legislation is not subject to filibuster and can therefore pass both chambers with only a simple majority (i.e., 51 votes in the Senate).

Issues like the debt limit could be handled in one of two ways. In theory, reconciliation would allow Republicans to couple a debt limit hike with other measures and send it to the President with only Republican votes. However, in practice this would be difficult: with a narrow majority and differences between centrists and conservatives in the party, Republican leaders could struggle to get 51 votes for a debt limit hike.

The alternative would be for Republican Senate leaders to try to attract Democratic support to pass a debt limit hike with 60 votes. However, if Republicans win the Senate majority, we would expect them to push for greater concessions from the White House around this sort of fiscal deadline than they have managed to get recently.

The result is likely to be less predictability regarding the process surrounding major fiscal deadlines. Since the confrontation between House Republicans and the White House over the debt limit in 2011, markets have gradually become inured to fiscal brinksmanship, as these debates have started to follow a predictable pattern. If Republicans win majorities in both chambers as polls currently suggest they might, that pattern seems likely to change, which could lead to renewed uncertainty ahead of future fiscal deadlines.
emphasis added
Here was go again in 2015.