Credit | Fiscal Policy | US
US Sovereign CDS Will Track Sentiment About the Debt Ceiling Outlook
- By John Tierney
- 3 min read
Another year, another Congress, another debt ceiling crisis. Usually, these things get resolved after tense negotiations and much noisy posturing. But as we learned in July 2011, they can go right to the brink of default too.
Consensus believes this crisis will also see resolution – if only because the consequences of the US defaulting on US debt are unthinkable. Since Republicans have refused to help Democrats pass debt ceiling legislation, Democrats must pass it through the reconciliation process. Rather than the usual 60-vote supermajority, the process allows a simple majority vote to approve budget- and debt-related legislation. The consensus is counting on Democrats being the adults in the room.
As we wrote earlier this week, progressive Democrats have a huge stake in how this is done. If their $3.5tn social and infrastructure bill must be sacrificed to raise the debt ceiling, it will take only one of them to refuse to be an adult to precipitate crisis – unless Republicans break ranks. That is not our base case, but given how polarized US politics have become, it is possible.
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