Economic stability hangs on US love of BBQ

NEW YORK, May 26 (Reuters Breakingviews) – The threat of U.S. default isn’t the only thing bringing lawmakers to the negotiating table. After months of wrangling, posturing and volatility, Democrats and Republicans were getting closer on Friday to an agreement that would avoid the world’s largest economy failing to honor its debt – just before the holiday marking the start of summer. That unofficial deadline adds urgency, and also makes it likely that a deal will be no better than just good enough.

As of Friday morning, U.S. President Joe Biden and Republican lawmaker Kevin McCarthy were working on an accord to cut the growing deficit. But lawmakers are also ditching Washington ahead of Memorial Day, a U.S. holiday marking the start of warmer months. Any agreement needs to be vetted for 72 hours and then voted upon. And there are only two days after the long weekend until June 1, after which the Treasury has warned it cannot guarantee its obligations will be paid.

The agreement as reported by Reuters would increase the debt ceiling for two years, until after the 2024 presidential election, but leave much unsolved. If the political landscape changes by then, anything goes. The fine print on things like non-defense spending, including childcare, cancer research and limits on food assistance programs can still be tweaked, while discussions to raise taxes look to have been sidelined. Factions among both congressional Democrats and Republicans, who still have to vote on a deal, have griped that they are both giving up too much.

Investors seem optimistic. The cost of insuring exposure to government debt has fallen in the past few days as a deal nears, and the S&P 500 Index (.SPX) is going up. But any deal is unlikely to fix the fact that the U.S. government spends too much money, and each new administration has an incentive to throw restraint to the wind. Two years from now, the debt picture could look worse. In the meantime, a banking crisis, inflation crisis, and potential economic crisis are all pushed into the background.

Investors will come back from their weekend of burgers and beer and see stability, which means they will be ready to take risks again. American lawmakers will come back still drunk on dysfunction.

Follow @thereallsl on Twitter

CONTEXT NEWS

The White House and congressional Republicans on Friday aim to put the final touches on a deal to raise the U.S. government’s $31.4 trillion debt ceiling for two years while capping spending on everything but military and veterans, according to Reuters, citing a U.S. official.

Editing by John Foley and Sharon Lam

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.