Debt ceiling deadline looms, Biden's agenda in peril

Rick Newman joins the Yahoo Finance panel to discuss the Democrats' efforts to pass Biden's 'Build Back Better Agenda' as the debate intensifies in Congress and the ramifications failing to raise the debt ceiling could have on the nation.

Video transcript

- Something else we are watching that is out of Washington is the continuing negotiations that SAAS and many other investors are worried about, in terms of the implications for a government shutdown as well as for the debt ceiling. Our Rick Newman has been watching all that.

Now, Nancy Pelosi says this week there's going to be a vote on the trillion dollar infrustructure bill that is happening on Thursday, she's trying to push through the budget also. What is the realistic timeline look like for all of this?

RICK NEWMAN: This probably seems like one giant ball of cat hair to a lot of people, Julie, but there are four distinct things going on here. So let's just break these down. The most urgent is more funding for the federal government because that expires on Thursday at midnight, that's when the fiscal year ends. So Congress needs to pass funding so the government can stay open into the next fiscal year, starting October 1st.

The most urgent thing or the most important thing is raising the debt ceiling, but that doesn't necessarily have to happen this week because the treasury can probably borrow money for two or three weeks yet. And then we have these two legislative packages, the Biden priorities. One is the bipartisan infrastructure bill you mentioned, the other is the giant social plan with a price tag of around $3.5 trillion.

Now, these don't all have to be related but they are getting intermingled because politicians on both sides in Congress are trying to link one bill with the other and get this one passed in order to get that one passed, and so forth.

And it's just not clear what's going to happen this week, if anything at all, but the most important thing to watch for is does the government stay open and can Congress pass continuing spending so we can have a government in place by Friday when the new fiscal year starts.

- Hey, Rick. So I guess one question naturally is what does the balance look like, especially among the more liberal members of the House? Because it's not just Nancy Pelosi trying to maybe take down the number to appease Republicans, but you also have to make sure you don't pare it down enough where you start to lose something more liberal members in your caucus as well.

So what's the update on that? Do you feel like the sway is kind of in one way or another as to regards to the total number that we'll see in that spending package?

RICK NEWMAN: Yeah. The political drama here is, will they be able to pass both the bipartisan infrastructure package, and that is set at about $1 trillion of spending. You'll see another price tag associated with out of $500 billion but that's because there's about $500 billion in new spending and $500 billion in money that Congress has already appropriated that would be part of this bill.

Now, the question is, can they attach that or will they attach that to this other much larger bill? And I think the most likely outcome here is that we're going to get this-- all of this legislation probably is going to pass but that social plan is not going to be $3.5 trillion.

That is the way out of this mess but on both sides, the liberals, the moderates, the moderates, in the Democratic party. We're just talking about Democrats negotiating among themselves, by the way.

The liberals want a ton of spending $3.5 trillion, the moderates say that's too much, but the way out here is to end up with something like let's call it $2 trillion in spending in that big bill, maybe a little bit more.

So that might look like a setback for liberals but that is still a ton of spending. If it's $2 trillion, that will still be a giant bill and something, Biden based on his priorities, ought to be able to be proud of. But I'm not sure we're going to get to the finish line on all those things this week so stay tuned on all of that.

- So, Rick, let's take the first two things then because those are the two that potentially have more dire consequences in the short term for the market. The debt ceiling, which if that doesn't end up getting passed or raised, there could in theory be a default on US government debt. Now, that hasn't happened before, there was a warning on it a few years ago.

And then there's the issue of the government shutdown, which usually when that happens, especially if it doesn't last too long, is not viewed as too dire by the market because it's just deferred spending, it doesn't go away entirely, unless it lasts too long, right? So, I guess, of those two things, what do we need to be most concerned about?

RICK NEWMAN: Let's take a shutdown first, Julie, because that's the thing that is coming this week when the funding runs out Thursday at midnight. You're right, ordinarily government shutdown does not affect markets too much but we haven't done this before in a pandemic, so I think that's very important to keep in mind.

It's not like the wheels of the markets are going to grind to a halt, that's not going to happen but we know that the Delta coronavirus variant is a major factor in the economy right now and what services might go away or get put on hold if we have a shutdown. I think that's the thing to be watching for.

The debt ceiling, again, the so-called X date when Treasury simply cannot come up with more money is probably around October 20th. So that is not something that must get resolved this week or even next week but the longer this goes on, the closer we get to the date when this really becomes a problem. Markets are going to get nervous about that.

And, I guess, the good news here is this is a problem will solve itself if we have some kind of wipe-out in markets because that would be the thing that gets Congress to just pass this and get us past it.

But the question is, how much damage are we going to have in markets before we get there? And I think people should be prepared that this is going to go down to the wire because it's just not clear how this gets resolved in Congress. It will get resolved somehow, it's just not clear how.

- Well, maybe we should just have that move right now, get it over with, force their hand now.

[INTERPOSING VOICES]

RICK NEWMAN: Like why does everything have to be a crisis? I mean, let's just point out, these are all human made crises, none of this has to be a crisis. And if Congress function normally, we wouldn't even be talking about it, we would just be talking about those two legislative bills. But that's not the way Congress works so we're going to just cause ourselves more problems for the next couple of weeks.

- Awesome, something to look forward to. Well, on the upside we'll get to talk to you more, Rick, so that's the good part. Thanks Rick Newman, appreciate it.