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Financial Planning > College Planning > Student Loan Debt

Valliere Sees ‘Worst-Case Scenario’ in Debt Ceiling Fight

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As both sides of Congress have hardened their positions in the budget fight, political strategist Greg Valliere fears a “worst-case scenario” on the debt ceiling is becoming more likely.

That scenario, in which the shutdown would be tied to debt ceiling negotiations, “could lead to a serious crisis” as the Oct. 17 debt ceiling deadline approaches, Valliere says.

In his Tuesday commentary, Valliere with Potomac Research said he saw the government shutdown lasting into next week or longer.

Indeed, Valliere says that if the shutdown is not resolved by next week, the Oct. 17 debt ceiling deadline undoubtedly will become part of an “even more complicated narrative,” with three new dynamics:

  • A huge new set of GOP demands: House radicals are determined to attach an enormous laundry list of demands to a debt ceiling extension, including approval of the Keystone pipeline, the promise of tax reform, curbs on federal pensions, etc.

  • A tidal wave of lobbying by Wall Street and business: Even a vague threat of a debt default terrifies the markets, so we would expect Wall Street and business groups to intensify their lobbying efforts to end the two crises. The problem, of course, is that within the Tea Party there’s antipathy toward Wall Street and the banks, whose pleas may be greeted with shrugs from the hard core.

  • A potential shift in public opinion: The polls clearly show the Republicans are inflicting damage on themselves, but that could change. The phrase “raise the debt ceiling” is unappealing to most Americans, and a majority wants any hike in the ceiling tied to more spending cuts. Republicans may win public backing for a hard line on the debt ceiling, still another cause for concern.

Valliere also notes that three developments will have to come into play. First, “a nasty signal from the markets is required; the sanguine view on Wall Street that a Grand Compromise will materialize is fanciful.”

Second, House Speaker John Boehner, R-Ohio, “will have to capitulate, but that doesn’t seem imminent.”

Third, President Barack Obama, “never shy about using executive authority, will have to raise the debt ceiling by executive fiat — but not before this crisis deepens significantly.”

Check out Forget Government Shutdown, Bigger Crisis Looms, Axel Merk Says on ThinkAdvisor.


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