N2K Top 10: On Debt Limit, House Plan vs. Senate Plan; Debt-Limit Debacle Threatens China

Monday, July 25, 2011 | 7:45 a.m.

ON DEBT LIMIT, HOUSE PLAN VS. SENATE PLAN. House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev., are pushing opposing debt limit plans, raising the odds of a legislative showdown in which each chamber moves alternative plans this week. Boehner wants a two-part process, with a six-month debt limit extension and a second debt ceiling hike early next year if matching spending cuts are found. Democrats will accept a two-part process on deficit cuts, but insist Congress must allow the debt ceiling to be raised until after the November 2012 elections. On Sunday, Reid outlined a plan along those lines, with $2.7 trillion in spending cuts.
DEBT-LIMIT DEBACLE THREATENS CHINA'S ECONOMY (AND BY EXTENSION, THE WORLD). Chinese central bankers are almost certainly sweating out the Washington drama over the debt limit, analysts at High Frequency Economics warned this weekend, because it has the potential to wreak havoc on China's economy. There are several ways that could happen. For one, China owns a large portfolio of U.S. treasuries, so a credit downgrade or default would deal a blow to Beijing's central-bank balance sheet. Even without a downgrade, China would suffer if America, its top trading partner, should dramatically cut spending to cope with a failure to raise the debt limit. "We have no doubt the world economy would fold with it," HFE warns.
GLOBAL MARKETS REACT TO DEBT IMPASSE. White House Chief of Staff William Daley predicted “a few stressful days coming up – stressful for the markets of the world and the American people,” he said on CBS’s Face the Nation Sunday while assuring that he was confident the U.S. would not default. Looks like those "stressful days" are upon us: The Nikkei average dropped Monday on worries that a U.S. debt agreement would not be reached, European shares fell on early trade, and stock index futures for the S&P 500, Dow Jones Industrial Average, and Nasdaq were all down on Monday, Reuters reports.
NO DEBT TALKS ON MONDAY’S SCHEDULE. After two meetings with congressional leaders over the weekend, President Obama is scheduled to stay out of debt-ceiling talks on Monday – or so the schedule says. Should the status of talks on the Hill change, there could be a last-minute session. Either way, European and Asian markets, which suffered only mild downturns by the news that talks had fallen apart, will be watching closely. U.S. stock futures were down before the markets opened on Monday.
GEITHNER FLOATS A COMBO DEAL. Treasury Secretary Timothy Geithner suggested that lawmakers could still reach a deal that would include both a bargain for immediate cuts and the creation of a commission to handle cuts in the future. “Both of those are on the table,” Geithner said in an appearance on ABC's This Week. “Now, they could be combined in various forms.” Geithner also added clarity to the administration's interpretation of the 14^th Amendment. He shot down speculation that President Obama could raise the debt limit unilaterally under the amendment's authority. “We’ve looked at this very carefully,” he said. “This is not a workable option to limit the damage to the American people that would come from Congress not acting to avoid a default crisis.”
WU FIGHTING TO SURVIVE. Rep. David Wu, D-Ore., buffeted by allegations he had unwanted sexual contact with a teenage girl, will not seek another term, he announced over the weekend. But he's fighting to stay on through the end of the 112th Congress, while Democratic leaders work to force him out. House Minority Leader Nancy Pelosi, D-Calif., and DCCC Chairman Steve Israel, D-N.Y., have called on the House ethics committee to investigate the allegations. Wu's district, once a swing seat, is now safely Democratic, and several prominent local officials had already said they would run regardless of Wu's own future.
AMES FIELD SET. Iowans will have the opportunity to vote for one of nine presidential candidates at the party's quadrennial straw poll on August 13, a list that includes Reps. Michele Bachmann, R-Minn., Ron Paul, R-Texas, and Thaddeus McCotter, R-Mich., as well as Herman Cain, Tim Pawlenty, and Rick Santorum, all of whose campaigns have purchased space at the event. Also on the ballot: Mitt Romney, Jon Huntsman, and Newt Gingrich, the state party's central committee decided on Saturday. But that leaves two of the best-known Republicans, Texas Gov. Rick Perry and 2008 vice presidential nominee Sarah Palin, off the list. There is, however, a line to write in another candidate.
INSIDERS SUPPORT RECOGNIZING LIBYA OPPOSITION. Seventy percent of National Journal’s National Security Insiders strongly support the Obama administration’s decision to formally recognize Libya’s opposition government as the legitimate representative of the Libyan people. Most said they support funneling some of the billions of dollars in frozen regime funds to the rebels for whatever they need in the fight to overthrow Col. Muammar el-Qaddafi—although some cautioned against arming the rebels directly.
NO HEALTH CUTS IN DEBT CEILING POSSIBLE. Senate Majority Leader Harry Reid, D-Nev., is working on a deal that raises the debt ceiling $2.4 trillion and makes cuts of $2.7 trillion, but doesn't touch entitlements or raise taxes. That likely speaks to Democrats' outright opposition to cutting their "sacred cows" of Medicare and Medicaid unless Republicans were willing to give in on taxes. But exactly how Reid gets to $2.7 trillion--without touching federal health programs--remains to be seen.
FIGHT OVER EPA FUNDING TO BLOW UP ON HOUSE FLOOR. Debate begins this morning on the House Interior-Environment spending bill, which could become one of the biggest legislative battles between President Obama and congressional Republicans. The fight over the GOP bill to slash spending on programs to tackle climate change and regulate offshore drilling – and to jam through more than three dozen policy riders – could blow up on the House floor as debt talks reach zero hour. While the Interior-Environment fiscal 2012 spending bill looks set to pass the House floor later this week, pushback from Democrats and health and environmental advocacy groups will be fierce. On Sunday, American Family Voices began running this attention-grabbing ad against the bill during the morning shows. The senior Democrats on the House Appropriations and Energy and Commerce Committee will keep things going with a 9:30 a.m. press conference today slamming the bill.