Debt Ceiling Deadline Looms; UK-Iran Standoff in Gulf
President Donald Trump continues to push the envelope on partisanship with the reported roundup of illegal immigrants as early as this weekend. As this takes place, tensions are growing over the need to increase the debt ceiling, which if not accomplished, could pose serious problems for federal government finances this fall. While the Treasury Department has yet to notify Congress of a “drop dead” date for the ceiling raise, there are reports lower federal inflows may be accelerating the date earlier than mid-October.
In Congress, Federal Reserve Chairman Jerome Powell said it would be “unthinkable” for the US government to default on a payment because of the failure of Congress to increase the debt ceiling (see page 6).
Meanwhile, House of Representatives speaker Nancy Pelosi has been dealing with internecine fighting within the Democratic caucus and will need to use all her political skills to get the votes together to increase the debt ceiling, always a tough vote. The Democrats are likely to need assurances from the Senate Republicans and President Trump that the spending caps called for under the sequester provisions of the Budget Control Act will be lifted for domestic spending and not just defense spending. Without such a deal it will be a real challenge for the speaker to round up the votes to secure passage of the debt ceiling.
The House is scheduled to leave town for their August break on July 26 and not return until after Labor Day in September. Perhaps Congress and the White House could come up with a short-term increase, even days or weeks, but we could have a completely avoidable crisis on the horizon. Stay tuned.
Separately, there are reports U.S. Treasury Secretary Steven Mnuchin has been suggesting to U.S. suppliers of Huawei Technologies that they seek licenses allowing them to resume sales to the Chinese firm (a Treasury spokeswoman denied the story). The US in May banned U.S. firms from selling parts to Huawei, which was required to receive government approval before acquiring technology from US firms. President Trump is looking for a trade deal with China (or near certainty of one) as the reelection season will soon kick off. Further easing of these restrictions on one of China’s most prized global companies would not be surprising.
International relations must seem like the whack-a-mole game, sometimes. Just as the U.S. and China try to ratchet down trade tensions, potential conflict in the Middle East boils over. Last week, three Iranian vessels tried blocking the passage of a U.K.-flagged oil tanker on its way through the Persian Gulf. A British warship came to the rescue. US sanctions on Iran are hurting the country’s economy, and things likely will get worse if the there’s no diplomatic relief. Additional sanctions may be forthcoming as Iran has continued to breach prior commitments on uranium enrichment. The standoff continues.
