Debt Ceiling Eliminated?

There was yet another twist in the debt ceiling debate as President Trump’s meeting with Nancy Pelosi and Chuck Schumer has led to an additional agreement. President Trump wants to eliminate the debt ceiling completely. This has been a talking point the progressives have used for years so it’s not surprising to see the Democratic leadership agree to this deal. In the short term, this helps the President and the GOP because they won’t need help from the minority party to get the ceiling raised, but in the long term it helps the progressives because the fiscal conservatives always try to attach spending cuts to agreements to raise the ceiling.

While different deals are made where anything can be attached to it, it’s easier to get spending cuts done because the debt ceiling shows how much the country’s fiscal house is out of order. The December vote to get rid of the debt ceiling will depend on how many fiscal conservatives balk at the idea.

In terms of the current debt ceiling debate, the Senate passed the increase and Harvey relief on Thursday, so it will be up to the House to pass it to send it to the President’s desk. The way the vote turns out will give us an inside look into how the ending of the ceiling vote will go in December. The Republican Study Committee, which has 155 members, opposes the deal. My expectation is this plan will pass because of Democratic support, but the one in December won’t because even more Republicans will oppose it because they want to rein in spending.

Looking at the issue from the stock market’s perspective, this is great news because the chance of the debt rating being cut has been almost eliminated this month. It would prevent future worries if the ceiling was eliminated. The dollar will be hurt by this issue because the risk off trade is no longer on the table and because the U.S. spending without constraint ruins the long term fiscal health of the government. The dollar is now at a 32 month low as my prediction that the dollar would plummet this year has worked out. This will provide a big tailwind to Q3 earnings.