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GOP To Vote Down Clean Debt Limit Increase

Anthony Randazzo
May 31, 2011, 3:02pm

The GOP today is trying to make a statement: a clean vote on the debt ceiling won't fly. It is a political stunt to be sure. But also a reminder of where the process is at in the fiscal responsibility debate and where the arguments should be focused. 

Tonight the GOP has a vote scheduled to make their point. So how is this likely to impact financial markets?

Well, it has been strongly forecast as a political maneuver. GOP leadership wants their members to be able to say they voted this down. And it'll appease the Tea Party. So for those on the Street that want to see an increase, they can safely assume this vote isn't anything new. Boehner has made it very clear that they are going to get something for this debt ceiling. And even Senate Dems have said as much. Any half-decent political analyst could tell you there is gonna be at least a small rider on this debt ceiling vote. Maybe not Medicare reform, but something

On the flip side, there are many on the Street that would rather not see the debt ceiling raised because it would be a sign of future fiscal instability. So the vote could also be a blip for them—again, this isn't news—or it could be interpreted as the GOP strengthening their resolve and give those investors more confidence. And that would be a good thing for the Street.

Then again, this all assumes accurate analysis by the Street of what is happening on the Hill. So it is unlikely this will have a strong, negative impact on markets. And may even be a bit positive. But the most likely outcome is little impact at all. 

As to how this factors into the GOP's end game approach to the debt ceiling, I still am bearish on their resolve (see a few interviews here on that). I am concerned that the GOP will use the political capital of this vote to excuse caving on raising the debt ceiling for some inconsequential rider, similar to the way they caved on the FY2011 budget in only getting faux cuts. 

Bonus:

I first mentioned the possibility of this vote at the start of this month on Judge Napolitano's show. See here for the interview.


Anthony Randazzo is Director of Economic Research


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