The U.S. stock market
is on track to post its worst day in months. And U.S. politics are in part to blame.
With the Dow Jones Industrial Average down 870 points in afternoon trading — on pace for its worst day since October — and the S&P 500 shedding more than 2%, strategists say gridlock on Capitol Hill is starting to send shutters through the market.
The S&P 500 is down 2.5% and on track for its own worst session since January.
Dan Clinton, head of policy research at Strategas Research Partners, wrote Monday that Wall Street is increasingly convinced lawmakers won’t address the debt ceiling anytime soon.
“Much of this is short-term risk and headline risk, but the framework of Washington policy is shifting to more risk after 18 months of unlimited fiscal and monetary policy,” he wrote. “Consensus now believes that the debt ceiling will be raised in the second half of October, meaning a last-minute move, and another month of talk of debt ceiling breaches and prioritization of government spending if the debt ceiling is not lifted.”
If Congress fails to suspend or raise the borrowing limit before the so-called “drop-dead” date, the U.S. government will default for the first time. The Treasury Department doesn’t have a precise “drop-dead” date right now, but estimates that it’s likely some point in October.
House Democrats plan to hold a vote this week on a piece of legislation that would suspend the limit and fund the government for a matter of months beyond the end of the fiscal year when it ends on Sept. 30.
Republicans have said they won’t help Democrats lift the borrowing limit as a sort-of protest over the trillions of dollars in new spending the Biden administration has proposed.
“This week, the House of Representatives will pass legislation to fund the government through December of this year to avoid a needless government shutdown that would harm American families and our economic recovery before the September 30th deadline,” House Speaker Nancy Pelosi, D-Calif., said in press release on Monday.
“The legislation to avoid a government shutdown will also include a suspension of the debt limit through December 2022 to once again meet our obligations and protect the full faith and credit of the United States,” she added. “The American people expect our Republican colleagues to live up to their responsibilities and make good on the debts they proudly helped incur in the December 2020 ’908′ COVID package that helped American families and small businesses reeling from the COVID crisis.”
The bigger hurdle is likely the Senate, where lawmakers will need to muster 60 votes to pass such a bill that isn’t tied to the separate reconciliation legislation.
Raising or suspending the debt ceiling does not authorize additional fiscal spending. Instead, raising the ceiling is more like increasing the country’s credit card balance.
Importantly, even if the Biden administration hadn’t authorized any spending — even if Congress had passed zero bills in 2021 — lawmakers would still need to lift the ceiling to pay for legislation passed in prior years.
“The U.S. has never defaulted. Not once. Doing so would likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency,” Treasury Secretary Janet Yellen wrote in an op-ed over the weekend.
