Hello, and welcome to the Votes and Verdicts podcast, hosted by the policy and litigation team at Bloomberg Intelligence, the investment research platform at Bloomberg LP. This podcast series examines the intersection of business policy and law. I'm Done Right and a analysis with Bloomberg Intelligence covering government healthcare policy.
And my name is Nathan Dean and I'm an analyst with Bloomberg Intelligence covering financials policy.
So our topic for today is you may have heard about it, the debt ceiling, and if you've been around DC long enough, you know that this is that sequel we wish lawmakers would stop making. But we're lucky to have Bill Holand, Senior Vice President of the Bi Partisian Policy Center, a nonprofit think tank that engages Republicans and Democrats to promote bipartisanship and policy development, to discuss this
important topic. When we decided to move forward with a podcast focused on the debt ceiling, Bill is the first person who came to mind. I've seen and heard Bill talk about the country's fiscal situation and healthcare financing many times, and I've learned a lot from those conversations. So I'm
looking forward to today's discussion. Just briefly, prior to the Bipartisan Policy Center, Bill spent thirty three years in the federal government, including as a staff member for Senate Majority Leader Bill Frist, as a director for the Senate Budget Committee under Senator Pete Diminici of New Mexico, and at Department of Agriculture and the Congressional Budget Office. And prior to joining the BBC in September twenty twelve, that Bill
was the vice president of public policy for SIGNA. So with all that, Bill, welcome to the Votes in Verdicts podcasts.
Thank you, Dwayne. Good to be with you.
So Bill, can you tell us how you came to join the BPC and maybe more about what the PPC is and the work you're doing to educate people about debt and deficits.
Sure, thank you, Dwayne. We had I had a saying on the that once you worked for a United States senator, you work for him for life. And as it turns out that once I had left the hill, as you had mentioned, Dwayne, I worked for Senator Majority Leader doctor Bill Frist, and I also worked for Senator P. P.
Dominici.
Both of them had a term limited or left the
left the hill themselves. Senator Dominici was here at the Biparson Policy Center, as was doctor Bill Frist as consultants here at BPC, and both of them I had left the hill, and as I I had taken this position with the SIGNA as you mentioned, which was a very trying time because this is when the Patient Protection Affordable Care Act was coming into existence, and it was really like a fire hose and I was hoping for a little bit less fire hose type job after coming off
I rather technic hill. But anyway, long story short. Both Senator Brist and Senator Dementia and one other former boss a very early in my career, long time doctor Alice Rivlin, who was the first director of CBO, she was here also working, and they all asked me to come over here to resolve. At that time was a dispute between our economic team and our health team over a particular policy issue. Asked me to come over help work it out. And I was only going to be here a year
and now it's going on about it. So that's how I came here. And yes, VPC said role is as as its name would imply, is trying to find in these very difficult day and age solutions to some of these difficult issues. We face that in a by Parson way because we truly believe, and I believe from the years of experience on the Hill, that the best policy is that policy has done in a Biparson way, and no better place than to it try to continue to practice that than the by Parson Policy Center.
And we have slit government right now which requires a lot of bipartisanship to address some of our key issues. One of them is debt ceiling. Can you give us a three second version of what the debt sealing is? In white matters?
Sure, the.
Country has a statutory in law, written in the law, a limit on the total amount of outstanding dead it can have at any one time. And that law law is right now about thirty one point four trillion dollars. It is thirty one point four trillion dollars. What that number is is the accumulation of deficits from the beginning of the republic, offset by any surpluses over there is from the beginning of the republic to today. That's the
amount of deficits. If you like that, we have run, as I say, offset by any surpluses, and the accumulation of that over the history of this country is now up to thirty one point four trillion dollars, and that's written into law. Congress has to pass another law to
change that number. And we have reached that point thirty one point four trillion dollars back in January, and as a consequence, we now have this standoff because to pass that pass that legislation obviously requires Congress in the House and the Senate and the present agreeing to a law, signing a law in place. It's made even more difficult by the fact that very tight House margins the Speaker
McCarthy has to deal with. Is also made difficult by the fact that in the United States Senate, as you know, doing that legislation would be subject to the filibuster rules. They need sixty votes in the Senate to raise that statutory debtline. So that's where we are today. We've reached that limit. We are now in the process of at least having discussions at the White House earlier this week, and we'll have discussions tomorrow and staff are starting to talk,
which is a good news. But we are in a very tight situation now where we might reach that limit after all other measures have taken into effect that we've used to make room under the cap to pay our bills. But come sometime here early in June possibly, or and we can get into that later. We do need to pass a law that raises that limit, otherwise the United States government would default for the first time in its history.
Do you think the June one date that Secretary Yelling laid out a couple of weeks ago is close to the X state or does the BBC absence of what the X state might be other than June one X state.
Yes, I think, first of all, we don't say June one. We've done our analysis earlier this week and put it out and we are continuing updating that. This is a difficult estimate to make, largely because it's all predicated upon expenditures going out and revenues coming in, and that can vary dramatically. But we do see in the numbers and
we know what's going to happen. As an example, first of June, there will be a forty seven billion dollar Medicare payment, a twelve billion dollars civil service military retirement payment, do twelve billion dollar veterans benefits, and then the next day, on June the second, there will be a twenty five
billion dollars security payment going out. All that suggests to us that we're going to have some major outflows and hopefully there's cash in the bank, so to speak, to cover those benefits, but we have to we don't know for certainty. So I think the fact that the Secretary has said June one makes sense given those payments, except we do we can't be that accurate. We have indicated in our own analysis that yes, those first few weeks
of June are critical. We may be able to slip by revenues coming in that would help keep cash in the bank. What we have said is that if we can make it to June fifth teenth. On June the fifteenth, quarterly estimated payments for the current HACKS year twenty three are due, if by chance we receive the quarterly revenue payments coming in as we expect on that date and we can make it the fifteenth without defaulting, that will allow us to go further into the end of June.
And if we can get to the end of June, there will be an opportunity once again to trigger what we call an extraordinary measure which would create one hundred and forty some billion dollars in d by not by the civil service, civil Service g fund payments, not investing those funds. So I don't want to get into the nitty gritty of all this, but there are there is the uncertainty. Here is early June, no question. But if you can get to June to fifteenth, we.
Can make it to the end June.
We could probably make it without any threat of default until at least late July.
So you mentioned threat of default, and that's a good segue into my next question. You know, we surveyed a bunch of Bloomberg terminal clients back in March sorry for their thoughts on the dead ceiling, and there was optimism, overwhelming optimism, like almost ninety percent that a dead ceiling breach would be avoided. But as you can imagine, as we get closer and closer to these X dates, more and more people get a little concerned. There's a little
bit of more uncertainty. So the question I have for you first is do you think we're going to default?
Uh?
And secondly, if you think we're not going to default, you know when will they come up? With an agreement. Will it be like the night before there you know the X date, or is this something where you think the parties can come together and actually solve with some time left to spare.
Well, good questions all. Number one, just my personal position on this is we will not default. I think the as we get closer, as you say, to the potential date of a default, I think the market will send a signal, a strong signal. We're starting to see a little bit of that. I admit that I don't think that we've seen the signals that I would have expected by now, but we're starting to see some of that.
And I'm seeing that specifically in two particular parameters. Number one, short one month type of securities, as you might know when they were put out on the market earlier. I think last week or week four last I tipped up a whole percentage point from four point five to five point eight percent or something, just a rent. I think that was the largest increase in that one kind of
one month type of security. We also are seeing something and I'm not a financial expert at all in this, but something called the credit default swaps, and they are kind of an indicate this is the basically insurance company that people buy, of course, to buy insurance against a default. As a consequence, we do see we've seen that kick up rather dramatically also, so I think we're starting to see signals out there in the market that there could that there is, but it's still a low probability. I
don't believe it will default. So I do think that we will get there now. To your point, though typical just like college students or students waiting till the last minute, I do think this could go right up to the brink and in negotiations. My hope would be and I pray that we do not default. But I think we'll probably see start to see market reaction here into May, early into June, particularly as we get closer that date, and that will, let's say, incentivize the policymakers to get
to find some agreement. They may not be able to reach a full agreement, but then my guess is recognizing what the impact would be from a default on the economy, on individuals and people and programs right down the line from medicare to medicate, my guess is that they might then see the need to have an extension a short term extension maybe to the end of July, to give them time to work out an agreement. I just I take Speaker of McCarthy at his word he does not
want a default. Mister mcconnall does not want a default. President obviously and does not want to default. Mister Jefferies and mister Schumer do not want to default. I take it at their word what they mean, which would give me hope that we will not well see it, but but we'll want The consequences are starting to not getting there or already starting to be felt, and we'll only get worse as we go into the latter part of this month into early June.
So obviously you've been in Washington a very long time. Could you give us some insight, baseball of how this actually works, because you know, we see statements from the Speaker of the House, Kevin McCarthy that they won't do a short term solution. President Biden won't do a term solution. So you think of the meeting last week or any future meetings. Is this a situation where President Biden and the Speaker lectured to each other or are they actually
at some point well they start negotiating. How does it work when they get into these rooms.
Well, you're kind to suggest that I know how it works. I thought I knew how it worked there was a time. But the truth of the matter is that at least the four are talking. As I say, that's good sign. At least they're talking, and we'll talk tomorrow and the better news and this is pretentious as a former Senate staffer for many years, the other good news is the staff are now talking and Dan Myers, who was with the Speaker McCarthy, as well as O and B Director
Young are starting to talk. So I think that what really matters here, and this is going to sound really terrible, I think it's I think it's at the staff level. Right now, they have been meeting. The staff have been meeting since the meeting at the White House earlier this week.
My guess is they'll start to come bring their bosses some areas and where there's compromise or where there are areas of common agreement, and we'll start to nip away at finding some form of a compromise between the President and particularly the House.
I deal.
I've dealt my career with a number of these situations, and it does come down to when you have a divide at Congress that we have right now.
Whether it was in.
Twenty my initial exposure to this, that's hard to hard to say this, but was nineteen eighty five with when we were passing having to reach up to two trillion dollars in raising the debt limit in nineteen eighty five Trade.
Now I remember thirty five, it's.
Two Trade and a couple of senators a senator, and then became three senators, Senator Phil Graham and Senator Warren Rudman and Senator Fritz Hollings came together and said to the leadership of the Senate, we're not going into my boss at that time, now, Senator Dominici, we're not going to vote for an increase in the debt limit unless
we change the budget process. And so out of that came the historic Graham, Rudman Hollings legislation, and that, by the way, we're still living with elements of that to this day, such things as caps and sequesters. So I do think when you have a divide in Congress like we have here, as we had quite frankly, probably more recently in everybody's memory, would be twenty twenty eleven when
we were in a very almost similar situation. Now the margins were much different from Speaker Bayner Republican in control of.
The House, and.
At a House that was controlled by Republicans, the Senate was controlled by a very small margin by Democrats, the majority leader Harry Reid. Interestingly, mister McConnell was the minority leader at that time also, And of course in the White House we had the Vice President was mister and
under President Obama, and so we have this. We have some people who have been through this not well a few years ago in twenty eleven, and it forced a forced a compromise and forced legislation that set caps for ten years, which we quickly modified after a few years. But I do think that in a divided Congress, it can't be my way or the highway, whether it's mister McCarthy's position or the President saying I'm not going to negotiate. No surprise coming here from the by Parson policy so center.
I have to believe that at the end of the day, there has to be a compromise, and I believe it is starting to slowly begin to happen. In fact, I understood the President was willing to consider a removing taking the position that the unobligated balances, unexpended balance, obligated unobligated balances from the six pieces of legislation, primarily the pandemic legislation that have not been obligated, that he would be
willing to call that back. Well, that's a good start, and then if I can maybe, well i'll stop the wayne. Then you may have a couple of questions. But I have a possible outcome too.
Yeah, and I want to get into that. But you mentioned the eighty five experience, the twenty eleven experience. Is this and I mentioned earlier this is a movie we keep seeing over and over again. It's a sequel we don't want. Is this the scariest version when you think about the narrow margins in the House that need to get to sixty in a seeming willingness by some people to say, some members to say default isn't going to be that big of a deal. Are your what are your thoughts on that?
Well, first of all, I would note that I think and I looked at some of the statistics here recently, over half of the members of the House of Representatives weren't here in twenty eleven, twenty twelve. Over half of them have never had it gone through the process of active producing a budget, a real budget resolution. As you know, Dwayne, particularly, there is a process of putting together a budget on the House Senate, compromising, and that then guide's fiscal policy.
Most of them have not had the real experience of what it really means to follow the regular order as
I call it. So, but you're right, I'll be honest, this one's a little bit more dicey than some of the previous ones because, first of all, the margins are so small for mister McCarthy, and as a consequence it is he is in a very difficult situation as to his own speakership as to whether or not given the commitments he made and is unwillingness to move off of where we where the House passed the legislation was of a couple of weeks ago. He's in a very cat
can he compromise without jeopardizing his own speakership? And I think that's really part of the dilemma we face today, that they face today, and why it makes this a little bit more risky than some of the previous experiences that you and I and others have seen in in the in recent.
History well to that point. And who has the leverage here? I would have said before that the House passed their bill, Democrats probably have the leverage, but maybe it's McCarthy given the dynamics of his caucus in the fact that they actually passed the bill. What do you what do you think the leverage lies right now?
It's a good question. I would say that the leverage and you may not. I still think the leverage lies with the President. I do, and I say that not because it's something that he wants to do or Secretary
Yellen wants to do. But if it comes to whether or not he breaks a law, which is that he continues to provide the full faith and credit of the American trasuries securities, he has the potential authority in his back pocket called the Amendment fourteen of the Constitution that the question of the full faith and credit of the
American securities shall not be called into question. And it's questionable, but I do think that he's not going to allow the full faith and credit of the United States to be jeopardized.
And if it gets down.
To it that there really is no solution. I believe he will go ahead and trigger a rule Amendment fourteen of the Constitution. We've never been here before, as you know, I say that without any inside information whatsoever. But I do believe we did have an nineteen thirty five Perry versus the United States. We had a little similar situation to Supreme Court ruled that the full faith and credit the United States should never be called into question under
Amendment number fourteen. So I think that the leverage may still to the extent that people have leverage, I still think it may lie with the executive and the President.
Well, if I can just ask a quick question on that to your point, be tested. But yeah, we see the nervousness in the markets and getting worse as we get closer to the X date. If going do you think going the route of the Amendment fourteen amendment? Do you think that creates more uncertain Uh, you don't know if he would even stand from a legal sting.
Yeah, you're right, And that's one of the one of the reasons why I don't think anybody wants to go that far is because even if they were to do it, then there would probably be legal challenges that would be disruptive there would be court cases, and as a consequence, the market would continue to be unclear and and it would be uncertainty and risk out there.
So it would continue, I believe.
To be a real a drain on our economic outlook. By the way, I say this with because various conversations and presentation I gave yesterday to a group, I said something about if there was a default, it'd be a short default, and because the consequences will be so rapid, so quick, uh, and so so much damage done politically both the Republicans and Democrats, that they figure out a way to wreck their mistake, I think quickly, unfortunately and
at to my point. But a default is a default, and if you default once, that has a long term ramification. So nobody wants to go this route, I believe, And as I say, I take, I take the four leaders statements at the heart that they do not want that. So this would be a this would be a real challenge h going forward to use the fourteenth Amendment. But uh, it is in his back pocket.
But even if President Biden were just signed the law, the House pass bill, we'd still be running deficits and we'd still have that feeling fights in the future. Oh, let's step back, and I know GPC and you have a lot of ideas here. What is your thoughts on some of the policy proposals that have been thrown out there, like a budget RNED Title commission, H is there. I'm personally skeptical of these commissions, largely because they don't tell
us something we don't already know. It's more about willpower than anything else. But what are your thoughts on some of the ways out of this or a path forward so that ceiling fight doesn't become this thing we have to do every eighteen months.
Well, the first thing would be to just eliminate the statute the law itself, and I'm somewhat agnostic about that, but I do think that there's only one other country in the world that has a similar kind of a debt limit, but they've said it so high that it doesn't become a problem. I think that's in Denmark. So there is a question as to whether or not we
should even have this law on the books. My agnostic side of me says that yeah, but it lets us have this discussion that we're having right now about our fiscal future. However, to your point, even if this even if and it won't happen. But even if the House limits have cut to grow act however it's defined in law, the debt to GDP will continue to grow under our just baselines, And in fact, we'd still be well above one hundred percent of GDP on debt held by the
public in the year thirty three. That's largely because as you know more than anybody else, and you people have been through this too. Is the central situation. What the focus of the legislation that the House is put forth has nothing to do with the probably what I consider to be the real drivers to spending. If you're really a focus on spending, and that's difficult, but it is so security, it is Medicare, it is Medicaid, it's our entitlement program and those that's where the real growth in
spending is focusing on. Just most of the savings in the legislation from the House, almost all of seventy percent, seventy five percent of it has to do with setting a cap on one third of the federal budget, which is the annually appropriated accounts. And then I'll go one step further. I don't believe House Republicans or even Senate Republicans would ever go along with a defense discretionary number
lower than what the President has proposed. And so this really brings us down to focusing only on about thirteen fourteen percent of all federal spending, and that's non defense discretionary. They have really you've taken so security off the table, medicare off the table, you've taken taxes off the table, I'm sure from the republican's perspective. So where do you go? You go to this thing called non defense discretionary, which is quite frankly, most American public would understand, is really
what they think of when they think of government. That's small business administration, that's National Institutes of Health at CDC. That's that's the border patrol. That's t s A UH, it's education grants for educations, land grant educations at agriculture research. That's where most of our federal UH, where non defense discretionary goes, transportation, UH, safety in the air or water.
And that's that is not the area that we should be focusing on in terms of reducing spinning, unless you're the alternative course is increasing revenues by increasing taxes, which is also not politically popular, So I it's understandable for these and in some way, I guess it's understandable not for me, but it's understandable with why some newly elected politician that's only been there in the Congress for a few years doesn't see the what are the real factors
that are driving debt and deficits if they really want to do something about it.
So I'm going to actually get rid of our constant and I'm going to make you in charge of the entire country and Congress. So you get to live in the White House and you get to direct the folks on the other side of Pennsylvania Avenue as you wish. What would you tell them to do? What is the what is the negotiated solution here that you think is the makes the most sense.
Well, I wouldn't want the job because it is not. But I don't think there's any question. If I believe the numbers going forward, and for my children's future and my grandchildren's future, I would say we have to find a way to combine both. In additional revenues, I personally would focus on some form of a carbon tax or a climate oriented tax to deal with some of those issues. I would create more revenues at the same time very difficult.
I would say, we have to remodel. We have to modify our major benefit programs, that being Social Security and yes, even Medicare, and we have to find a way to slow the rate of growth, not cut, just slow the rate of growth in those programs. I believe you can do that in Social Security by not affecting low income individuals. But you can restructure that so that I do not get a major Social Security benefit. I shouldn't be getting that.
But I certainly can see that there are ways is to change the formula and Social Security, I think, and this is the hard one, the hardest one of all is in the healthcare area, finding ways to make this rather inefficient delivery system that we have out there costly system while also protecting the those who need benefits and should get benefits and have quality health care. I think you have to put the big ones on the table, sit down and have a serious discussion, have a compromise
between both revenues and entitlements and entitlement spending. And I'm not suggesting in any way, shape or form that that would solve the problem overnight, but it has to be something that would go work into the future and lower that level of debt that we are accumulating, which is a form of attack on future generations.
Anyway, when do you think we can actually have that conversation, Because it feels like so long as Medicares Trust Fund, the deax state for that gets pushed back further and further, there's less of a willingness. So is there ever going to be.
Yeah, well, listen, I think you've just identified an opportunity here. I listen, nothing's going to happen in this Congress. I'm very skeptical of anything of any made uture deficit reductions going forward or any kind of a control of our debt. But you highlighted something that's coming up. They're going to have to not that far down the road, They're going to have to deal with the HI Trust Fund being exhausted I think in twenty thirty one, and the Social
Security Trust Fund in twenty thirty three. There's going to be triggering events again, and that's going to force them to have to talk about changes in those programs, either additional revenues or modifications in the benefits. So this is separate apart from debt limit, but it does seem to me there are opportunities.
You mentioned this. I'm not I agree with you.
I'm not a big fan of commissions and special committees and all that kind of stuff. We did that with the twenty eleven, we did that with green Greenspan Commission back in the eighties. But it seems to me that something along those lines are probably going to.
Be could be one.
Maybe face saving I like device right now, go ahead and do the discretionary set of discretionary cap callbacks of it, but admit that the real problems are those that I've just outlined, and let's at least have a.
Again safe phasing.
Maybe it doesn't do anything, but maybe you should have another kind of a Greenspan commission set up to start to focus on how to do this, how to deal with the longer term fiscal challenges we face.
I feel like we could talk about this for the next several hours, especially getting your expertise and insight on this, but iddink on that point, we'll wrap up this episode of Folks and Verdicts. We are extremely grateful to Bill for pairing on this episode. Very informative, great discussion for all of us, and thank you the listener for taking the time to join us, as well as a reminder you can read all of our Bloomberg intelligence research on
the Bloomberg terminal at bi Yo. Thank you all and have a great day.