Washington Insider -- Monday

Debt Ceiling Worries

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

WOTUS Proposal Due in December

The proposed rewrite of the waters of the U.S. (WOTUS) rule is on tap to be released in December, but it is not clear from the federal regulatory agenda just exactly when that will be finalized.

The rule to clarify the scope of the Clean Water Act and repeal the Obama-era WOTUS rule could come in December, according to A listing in the Unified Agenda released by the Trump administration July 20.

The process to replace WOTUS is a two-step effort. The first step came last month with the proposed rule to repeal the rule the Obama administration put in place. The next step would be to rewrite the rule and EPA has solicited inputs from state and local government officials in that effort.

The WOTUS rule put in place by the Obama administration has yet to enter into force as it is tied up in court. The U.S. Supreme Court is set to hear oral arguments October 11 on whether jurisdiction for the court challenges lies in the district court or the appellate court.

That court decision could be key even though it is not expected to wade into the merits of the Obama-era rule or the Trump administration's rewrite efforts. But the rewrite effort is likely to end up in court no matter what, so the Supreme Court decision will be key.

New Group to Push Agricultural Trade

Former Sens. Dick Lugar, R-Ind., and Max Baucus, D-Mont., are the honorary co-chairs of a new farm group they created called Farmers for Free Trade, a group seeking to emphasize the importance of trade for agriculture.

"Farming is still the backbone of our economy and the shining star of U.S. export growth — we need to keep it healthy and strong," Sara Lilygren, chairwoman of the new group's board of directors, said in a statement.

"That's why Farmers for Free Trade wants to ensure agriculture is top of mind as decisions are made respecting our industry's economic, political and business skills."

Washington Insider: Debt Ceiling Worries

Bloomberg reported late last week that Congress is increasingly concerned about the looming debt ceiling. For example it cited Senator Ron Wyden, D-Oregon, who exhorted Congress to raise the U.S. debt limit in a “calm, thoughtful” manner that steers clear of political uncertainty that would spook markets.

He urged his colleagues to avoid any political standoff that could set in motion “disruptive activities” including need to choose which bills to pay and which to delay—a strategy that has been discussed in the media lately. Wyden is the top Democrat on the Senate Finance Committee.

The government is projected to reach its statutory limit on borrowing sometime in October, the Congressional Budget Office says. The administration has asked Congress to raise the ceiling before then, but it’s running into the same complications the Obama White House encountered in the past--lawmakers, mostly Republicans, who want to use the debt limit as leverage to force unrelated policy changes, Bloomberg says.

Wyden said he prefers a clean debt-ceiling increase, one without any controversial policy riders. However, the administration has been divided on that issue, with Treasury Secretary Steven Mnuchin pushing for a clean bill while budget director Mick Mulvaney and White House economic adviser Gary Cohn say they are open to adding spending cuts or other riders to a measure to increase the limit.

While having a Republican-controlled Congress should be seen as a benefit to the President in driving his agenda, the recent difficulties encountered by Republican in attempting to pass health-care legislation is leading to led to deepening anxiety over whether legislators will be able to agree on raising or suspending the debt ceiling before cash runs out, Bloomberg says.

It points to concerns that are affecting the Treasuries market already, with traders willing to pay more for bills maturing after Oct. 19 to avoid being caught holding securities vulnerable to a technical default. Yields on Treasury bills maturing Oct. 19 have risen by about 10 basis points from Wednesday through Friday, exceeding those on bills maturing later in the year.

“I am very much aware of how important it is to this country’s well-being and economic stability that the handling of the debt ceiling be done responsibly,” Wyden said. “I personally think that the best way to do that is for both sides to knock off the politics, find common ground.”

In addition, there is recent discussion of what is being called a “secret plan” written by the Obama administration that could be called into action by this administration should Congress reach an impasse on raising the debt limit. That “blueprint,” an obvious if high-risk strategy to deal with such a crisis, is said to have been developed in 2011 at a time when the U.S. credit rating was cut for the first time. It would involve prioritization of payments on government securities over other obligations.

In the meantime, behind closed doors the Treasury Department is trying to reassure bond traders that it isn’t considering such a plan this year. However, Mnuchin has recently declined to publicly say that he wouldn’t prioritize payments, although he did make such a statement in January during his confirmation hearing, Bloomberg notes.

Wyden said the model for handling the debt-ceiling increase was set earlier this year, when Republicans and Democrats avoided a government shutdown by passing a $1.17 trillion spending bill that set aside partisan priorities. Bloomberg says that among other things, Republicans then ignored Trump’s call to include funding for a wall at the U.S.-Mexico border.

Wyden said there are preliminary talks about the method to boost the debt ceiling, but he declined to say whether it may be added to an unrelated measure concerning veterans’ health care that is moving through Congress.

Still, he expressed concern about the global and financial implications of the political uncertainty surrounding the economy and the policy agenda.

“It does enormous damage to our country’s standing to have all of this churn and uncertainty,” Wyden said. “Our allies don’t know what’s happening on taxes, they don’t know what’s happening on infrastructure, they can’t make sense out of this health-care debate.”

Wyden is certainly correct that it would help stabilize the economy if the ceiling were raised quickly and smoothly. However, there are so many political wars under way now that it is extremely difficult to anticipate how the debt ceiling will be handled and what the implications of that fight may turn out to be, Washington Insider believes.

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