JEREMY HOBSON: Now let’s get to Washington where there are two big economic stories going on today. The first involves the federal debt ceiling. Lawmakers are scrambling to come up with a deal to raise the nation’s $14.3 trillion borrowing limit in exchange for trillions of dollars in spending cuts over the next decade.
Democratic Congressman Chris Van Hollen is a chief negotiator on the debt ceiling and he told Marketplace this morning that there may be a deal by the end of this week.
CHRIS VAN HOLLEN: Well, we’re very focused on trying to raise the debt ceiling in a way that runs through the end of next year. We think having to do a series of debt ceiling increases actually creates more uncertainty in the marketplace — better to get it done all at once if we can.
Let’s get some analysis now from Richard DeKaser. He’s an economist with the Parthenon Group and he’s with us live from Boston as he is every Wednesday. Good morning.
RICHARD DEKASER: Good morning.
HOBSON: Well Richard, it seems like whatever happens — if something happens this week — that it’s going to have some pretty big implications for the economy if we’re talking about trillions of dollars.
DEKASER: Well, that’s right. You know, the talk all along has been about kicking the can down the road a few months and revisiting this but, the Congressman just mentioned something which gets us past the election season, and that would be large — that is to say it would involve likely large budget cuts over many years. And the key issue here — the absolute critical issue — is the timing. Most of our budget woes are really long term issues and they mostly speak to things like entitlements such as Social Security, Medicaid, and Medicare. Short run, there’s actually been talk of being lenient and even persisting tax cuts like the payroll tax cut we had this year. So it could be very big and the timing’s going to be critical.
HOBSON: So by add to the deficit in the short run, get the economy going, and make the big cuts in the long run. Would markets be satisfied with a deal like that?
DEKASER: The markets would be satisfied if one critical thing was met, that is they were given assurance that these long term commitments would be met. Something which was hard coded into the legislation that would prevent spending from increasing for example above certain levels without being financed by taxes — that would assure Wall Street.
HOBSON: What about the other big story, Richard that’s going on in D.C. today, the Fed wrapping up its two-day meeting. Anything we should pay attention to on that front?
DEKASER: I think relatively speaking, this one’s going to be a sleeper. I think the Fed’s not going to change interest rates. They’re not going to announce any major new programs to buy securities as they’ve been doing for the past couple of years. And in part, I think the Fed’s tranquility reflects everything we’ve been talking about. As long as this huge uncertainty is going on in the tax front, the Fed’s going to have great incentive to wait and see how it all plays out.
HOBSON: Richard DeKaser, economist with the Parthenon Group, thanks so much as always.
DEKASER: My pleasure.
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