Washington Insider -- Monday

Debt Ceiling Talks Continuing

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

USTR Confirms Second Phone Conversation with China On Trade

The Office of the U.S. Trade Representative confirmed that USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese counterparts, but did not signal which officials the two talked with nor did they provide any information about what was discussed.

However, the Xinhua news agency said the talks were with Chinese Vice Premier Liu He and Commerce Zhong Shan, with the two sides exchanging views on implementing the agreement between President Donald Trump and Chinese President Xi Jinping in Osaka, Japan.

The two sides also discussed the “next steps” for the consultations, according to the Ministry of Commerce statement referenced by Xinhua.

Mnuchin had signaled early Thursday that the conversation was going to take place and also indicated that it could lead to in-person talks. But so far there has been no confirmation that an in-person round of talks has yet been officially scheduled.

Watch Now Whether Ag Budget Cuts Will Be Offsets For Budget Deal

The White House sent House Speaker Nancy Pelosi, D-Calif., a proposed list of spending cuts it says can be used to seal a debt ceiling deal. Treasury Secretary Steven Mnuchin said, “We have reached an agreement between the administration, the House, and the Senate on top-line numbers for both year one and year two. We are now discussing offsets.”

Pelosi, however, rejected the deal and talks will continue this week.

Ag interests are focused on the situation as the remember the ag sector and the crop insurance sector in particular had to get Congress to backtrack on multibillion dollars in cut as part of a prior budget accord. And ag interests are monitoring the situation and are likely to be ready to rally support in the event ag cuts are a part of the mix.

Washington Insider: Debt Ceiling Talks Continuing

The Hill is reporting this week that the talks over raising the debt ceiling are well underway between the White House and the House of Representatives leadership – but that the President is telling the Democrats “they shouldn't use debt ceiling as leverage.”

"I can't imagine anybody using the debt ceiling as a negotiating wedge," the President said on Friday. He called the debt limit a "sacred thing in our country." He did not provide further details on negotiations.

Treasury Secretary Steven Mnuchin sent letters to congressional leadership last week warning that the government could run out of money in early September unless Congress votes to raise the ceiling before leaving for the August recess.

In the past, House Republicans – including current acting White House chief of staff Mick Mulvaney – used the debt limit as leverage in fierce negotiations during the Obama administration. President Donald Trump himself tweeted in 2012 that “Republicans must use the debt ceiling as leverage to make a great deal!”

Mnuchin last week called his talks with Speaker Nancy Pelosi, D-Calif., “positive”, and said that that Democrats, Republicans and the White House are all in agreement that packaging a budget deal and a debt ceiling increase "is the first choice."

He said he expects lawmakers to stay in Washington, D.C., and vote to increase the debt ceiling if they are unable to agree on a broader spending deal before August recess is set to begin.

Bloomberg also reported that the talks are underway and the key participants, Pelosi and Mnuchin, kept the lines of communication open on Saturday in a bid to reach a deal—and planned to do so again on Sunday.

Pelosi has sought to pair a deal on government spending levels with an agreement to raise the debt ceiling. Trump on Friday said he thinks negotiations to lift U.S. borrowing authority were in “good shape,” despite Pelosi having rejected a White House demand for $150 billion in spending cuts.

The extended talks mean Congress and the White House likely will push up against Pelosi’s deadline to reach a deal before the House leaves town for its August recess.

The Trump administration earlier last week had given Democrats a list of $574 billion in savings options from which to find $150 billion to offset Pelosi’s proposed spending increases over the next two years. A Democratic official described the White House demand as a starting point, and that the talks would likely continue at the staff level over the weekend and into next week.

Roughly half of the administration proposals are straight spending cuts while the rest would result from overhauling various government programs, Bloomberg said. One proposal is a drug pricing plan from Trump’s fiscal 2020 budget, which the White House says would save $115 billion, Bloomberg said. Much of the plan is opposed by the pharmaceutical industry.

There are no revenue or tax increases on the White House list. The suggestions also include a proposal to extend budget caps for two extra years after they expire in 2021 in order to save another $516 billion. Under current law, $126 billion in automatic cuts would take effect by the end of the calendar year if the caps aren’t raised.

Pelosi and Mnuchin said last week that they were close to an agreement and continued their conversations even as Mnuchin was in France for a meeting of G7 finance chiefs. Congressional leaders have been pushing the White House to agree to spending levels for next year which would allow a budget caps bill to move with the debt limit fix.

Last week, Pelosi said she wanted to file a bill to set up House votes this week on the package. However, she cautioned, “nothing is agreed to until everything is agreed to – but we are on our way,” she said. “We have a path.”

The Treasury Department has been using so-called extraordinary measures to meet debt obligations since March 2, when the US reached its $22 trillion limit on borrowing.

Mnuchin has said that under one of the Treasury Department’s most conservative estimates, the US will be at risk of defaulting on payment obligations in early September – before lawmakers are scheduled to return from their summer recess on Sept. 9.

The main view of this process is that the participants seem quite hopeful, in spite of all the policy tensions. These talks certainly should be watched closely by producers as they proceed, Washington Insider believes.

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