Home Finance Debt pact’s ideal route to the Fed; Congress in sight

Debt pact’s ideal route to the Fed; Congress in sight

Democratic President Joe Biden and the leading Republican in Congress, Kevin McCarthy, have come to a consensus to enact a temporary halt on the federal government’s borrowing cap, which currently stands at $31.4 trillion.

The goal is to prevent a catastrophic default, which could occur as early as June 5.

However, their task is far from over. The agreement now needs to navigate through the deep divisions between the narrowly Republican-controlled House of Representatives and the Democratic-controlled Senate.

Biden and McCarthy have granted their endorsement to the agreement formulated by their respective aides during private discussions over the past few days.

The next step is to transform the agreement into legislation, which McCarthy has stated will take place on Sunday.

Afterward, McCarthy has pledged to provide House members with 72 hours to review the bill before voting. The process of passing the bill through both the House and the Senate will likely take several more days.

Time is of the essence as the Treasury Department has warned that the federal government will be unable to meet all of its financial obligations by June 5.

Leaders from both the Republican and Democratic parties in both the House and the Senate have already arranged or conducted meetings to brief their members about the specifics of the legislation.

Their objective is to convince potential adversaries to back the accord.

This is a critical moment, as Republican and Democratic “whips” will be tallying supporters and opponents.

The conservative House Freedom Caucus, which holds significant influence over McCarthy, could potentially derail the effort if its members feel that the deal does not include sufficient spending cuts. On the other side, some liberal Democrats may vote against the bill if they believe it concedes too much ground to Republicans.

Based on the whip counts, McCarthy will have to determine whether the bill has a strong chance of passing.

If it appears unlikely, he could choose not to hold a vote and go back to the negotiating table, or he could take the riskier approach of bringing it to a full House vote, hoping for a narrow victory.

In a dire situation, the House could resort to a rarely used emergency tactic known as a “discharge petition.”

This would allow them to bring a “clean” debt limit increase, without any additional budget provisions, to a vote.

House Democrats have expressed support for this approach, but they would require enough Republican members to join them to succeed.

Another option that President Biden could consider is invoking the 14th Amendment of the U.S. Constitution, which states that “the validity of the public debt of the United States shall not be questioned.”

This legal theory would allow him to authorize additional borrowing.

However, it is highly likely that such a move would be immediately challenged in the courts.

The House, which is controlled by Republicans with a slim 222-213 majority, is expected to take the first action.

To secure passage, a simple majority of at least 218 votes is needed, assuming all members are present.

Achieving bipartisan support will be crucial, as some far-right Republicans or liberal Democrats dissatisfied with the outcome may vote against the bill.

House debates and votes, including preliminary ones, may extend over a day or two.

If the bill is passed in the House, it will then proceed to the Senate, where Democrats hold a slim 51-49 majority over Republicans.

Similar to the House, the vote in the Senate may not strictly align with party lines, as individual senators from both parties may have different reasons for opposing or supporting the bill.

To permit in the Senate, the measure might need the backup of at least nine Republicans to pass by the “filibuster” rule, which asks a criteria of 60 out of 100 senators to move forward most legislation.

The Senate’s consideration of the bill is likely to take up a significant portion of the week. Majority Leader Chuck Schumer has the authority to determine when the bill will be brought to a vote.

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