Senate Majority Leader Mitch McConnell faces mounting pressure as Congress heads toward a pivotal moment regarding the national debt ceiling. In this context, we explore his recent public statements and the challenges ahead.
Mitch McConnell appeared to have a challenging start to his week. After having his summer disrupted by continuous expectations from President Trump, he found himself having to don a formal suit early Monday morning. While other legislators enjoyed their summer recess, McConnell had urgent matters to address, notably presenting a united front alongside Treasury Secretary Steven Mnuchin in his home state of Kentucky.
Following a controversial social media incident involving Mnuchin’s wife, alongside a visit to Fort Knox where he reaffirmed that the “gold is safe,” it was finally time for serious discussions. McConnell and Mnuchin publicly asserted that the U.S. would raise the debt ceiling to avert a default on its obligations, with McConnell firmly stating:
“There is zero chance — no chance — we won’t raise the debt ceiling. No chance,” McConnell declared. “America’s not going to default. And we’ll get the job done in cooperation with the Secretary of the Treasury.”
While McConnell’s proclamation was definitive, one must question its believability. Who exactly was he attempting to convince? Himself? Wall Street? President Trump? Let’s investigate further.
Thumbs Down
McConnell is generally perceived as a likable individual. He’s probably generous with tips, holds doors for the elderly, and might even go the extra mile for social niceties. However, his recent performance as Senate Majority Leader leaves much to be desired. Just last month, McConnell failed spectacularly to deliver on a key promise. According to CNN:
“If anyone could have resuscitated the troubled Obamacare repeal and replace bill, it was Mitch McConnell, the steady and disciplined Senate Majority Leader with a history of tackling tough issues. But after extensive negotiations and mounting pressure, the bill abruptly failed, culminating in a dramatic moment when Senator John McCain, a longtime friend and occasional rival, voted ‘no.’”
It seems unlikely that McConnell will fare any better with the debt ceiling issue. Currently, Treasury Secretary Mnuchin insists on a straightforward debt ceiling increase without any conditions attached. However, this is hardly realistic given the political landscape.
Before the debt ceiling can be approved, significant negotiations are bound to unfold, involving deals related to Trump’s border wall, spending cuts, tax reforms, military spending, and healthcare. These discussions may leave Mnuchin scrambling for funds to meet the nation’s financial obligations.
Moreover, Trump remains steadfast about his border wall funding, recently threatening a government shutdown in October if his budget does not include it. Just yesterday, via tweet, he preemptively blamed McConnell and Paul Ryan for any ensuing crisis surrounding the debt ceiling. Clearly, an intense confrontation looms in Washington next month.
Calling Mitch McConnell’s Debt Ceiling Bluff
Last week, we discussed the challenges of reaching a last-minute debt ceiling agreement. It’s important to clarify that we don’t suggest there won’t be any deal at all; rather, we believe that any agreement will come only after Mnuchin has exhausted all other options, leading to considerable market panic.
McConnell has unfortunately drawn a poor hand in this political game. After years of carefully navigating the Senate, he finally attained the role of Majority Leader, only to face an unprecedentedly chaotic Congress filled with political misfits. This reality must be disheartening for him.
If McConnell were playing poker, the wise choice would be to fold and leave the table. However, the stakes in politics are far too high for such a retreat.
Thus, he is left with one tactic: bluffing. He must present the forthcoming debt ceiling vote as routine, insisting that there is “no chance” it won’t pass and that a deal will eventually be achieved.
More critically, he needs to persuade investors that this will indeed be the case. So far, this task has been relatively easy, as many investors remain relaxed and content in the late summer atmosphere.
However, by the week of September 18, this tranquility may shift dramatically. As summer ends, investors will return to their desks, recognizing the reality of what the credit markets are signaling: Senate Majority Leader McConnell might just be bluffing.
In other words, the stock market could very well call this bluff and react accordingly.
Sincerely,
MN Gordon
for Economic Prism
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