Will Jim DeMint Filibuster Us into Default?

Wind your way past the debate on a  Balanced Budget Amendment to the Constitution, paid protesters carrying “Protect our Social Security and Medicare” placards, and sound bites from almost all talking heads.

When you do, you will discover that some serious folks in Congress refuse to give up hopes of a significant budget deal.  Prominent among the debt shock troops is Sen. Tom Coburn (Dr. Coburn to most), who yesterday released his plan to reduce projected federal debt by $9 trillion during the next decade.

Then comes news, privately from the Hill, that the Senate Gang of Six, of which Coburn is a charter member, has resumed real discussions on a debt reduction package.  Combine this with the $4 trillion budget plan of Senate Budget Committee Chairman Kent Conrad (also a member of the Gang of Six), and you realize that a lot of work is being done behind the scenes.

Is this apparent movement real? Will it lead not only to passage of an increase in the debt ceiling, but real reductions in our long-term debt?  Only the House of Representatives can really determine that.

Any plan approximating the ones outlined by  Coburn and Conrad will include some revenues.  It will include much more in spending restraint.  Is that enough to get the votes in the House?

We fear not…yet.

And it’s that “yet” that threatens to turn a typical Congressional goat rope into a real crisis.

Two weeks from today, the Treasury says it will begin to run low on money to pay its bills.  A detailed report by former Treasury Department Undersecretary for Finance Jay Powell confirms that fact.  If the debt ceiling increase legislation indeed bumps up against a filibuster in the Senate threatened by Sen. Jim DeMint, then you can count on about 7-10 working legislative days on the Senate floor before it passes.  That gets you to about July 30, if the debate started tomorrow.  The House would not get the legislation, as amended, much before August 2, the drop-dead date.

At that point, as we have noted before, we expect a short-term extension of the debt ceiling.  That extension legislation itself may be subject to all sorts of amendments—pay social security first, pay our troops in the field, pay Medicare bills, and on and on.  It also would be subject to filibuster on the Senate floor!

So while many serious members  of Congress work to get some kind of plan, time is truly running short.

Will Congress concede utter defeat and adopt the McConnell-Reid initiative?  Not likely, since House Republicans are lukewarm to the idea, to say the least.

Will Congress accept the sound budget restraint in the Conrad or Coburn plans?  Not without a deep change of heart by most Democrats.

We still only know two things:  the United States will not default on its sovereign debt obligations;  and, the chance of real chaos in government and in markets grows larger.

We talked to an old budget hand we started working with 30 years ago in this town.

“Can you believe that you and I are talking about a credit default swap market in American treasuries?  If we had even hinted at such a thing when we started, we would have been laughed out of town.”

And, yet, such a market exists now.  Market participants are getting a little uneasy.  Gold continues to rise.

Still, too many members of Congress seem willing to gamble, not on their political futures, but on the nation’s economic future.

Praise the Coburns and Conrads of the world.  They give us hope, even if scant.