Latest On Healthcare & Debt Ceiling
The GOP barely passed the motion to proceed with debate on the healthcare bill as John McCain dramatically came back from illness to push it over the edge. There was a snarky hot mic take which ended up being useful as Senator Susan Collins and Senator Jack Reed expressed worry about the lack of discussion on the debt ceiling. The fact that a moderate Republican and a Democrat could agree on the importance of the issue might mean there’s consensus on raising the debt ceiling without attaching any attached changes to spending. From the stock market’s perspective, it wants the debt ceiling to be raised as easily as possible without any controversy. The chart below shows the latest changes in the treasury bill yield curve. In the 2013 crisis, the 6-month to 1-month spread was negative due to debt ceiling worries. Now it is the 6-month to 3-month spread which is inverting. It appears there wasn’t much worry in 2011 despite that being the year S&P downgraded America’s debt. One possibility for that is the market didn’t realize the severity of the partisanship in Congress. Bond traders are now pricing in Congress’s inability to get anything done and the precedent of this being a contentious issue.
It’s impossible to discuss every permutation in healthcare because potentially 100 different versions of the bill will be voted on. One of the most likely possibilities is a “skinny” Obamacare replacement bill that Rand Paul has come up with. Some of the possible parts of Obamacare which might be eliminated in the “skinny” plan are the medical device tax and insurance mandates on individuals and businesses. The votes are expected to tell GOP leadership where everyone stands on each issue. It’s a ‘trial by fire’ approach to get something done. I’ll provide updates on the legislation in the next few days if anything happens. It’s critical that the GOP passes something that lowers spending so it can use that money to pay for the tax cuts. If there isn’t much cost savings from healthcare, the tax legislation will be equally as contentious.
