Debt Limit Background Modlin Global Analysis Newsletter

Thank you for joining us for this edition of the Modlin Global Analysis podcast. I'm glad to be joined by Dan Modlin for a series of questions. We're going to have this week where we normally focus on international affairs, but this week we're going to focus on the debt conversation that we see going on in Washington. So Dan, you had some questions and thoughts on that?
Dan
Yes, Kevin, there's obviously been a lot of partisan bakery from both. Slides about the negotiations that lead to this debt limit question, and I think it might be helpful if we step aside from the partisan discussion of this and just get down to the basics, talk a little bit about how this got started, what were the factors that put us in this situation with this debt limit crisis?
Kevin
That's a great question. First, the federal government approves three types of spending type issue related matters, so one has to do with the total spending that occurs through a fiscal year as you're what we call appropriations bills, then you also have the taxes that are occasionally approved by Congress that go on until an endpoint. And then you have the conversation around a debt limit, and these questions all converge in different time frames, but basically, your debt hits at a moment where your revenues are not meeting up with the spending and particularly in environments as we've seen. In recent years, with increased obligations for spending for entitlement programs that you have this wall and needing to address the debt.
Dan
Now you touched on this a bit, but maybe we could expand a little bit more and help us understand why leaders don't have a better idea of when the debt limit is going to be reached.
Kevin
So a lot of this has to do with the fact that while we have an idea of the total revenue that we will bring in year over year as a federal government and the idea of the total spend. At any given day, any given week, and month, it has variations to it. So we have an idea in the total, but month over month there's variation, and that's not unlike what we may expect with the weather. We don't know when it's going to rain, but we have a general idea of how much rain we will get each year. So because of that, we don't know when the limit will always be hit, but we have a general idea of when it will come about.
Dan
Now, one of the questions I think a lot of people have during these discussions is why it seems that leaders wait until the last minute frequently to resolve fiscal situations in Washington. You have quite a bit of experience working on Capitol Hill yourself. Help us understand that. Why is it that people can't sit down and get these things worked out in advance?
Kevin
Even though the specific date is uncertain, sometimes on when the debt limit may be met. The general timeline and when it's anticipated is understood by all sides and in Congress. They are not ignorant about timelines or when these develop, it has to do with what the expectation of what leverage they can get from certain time frames or when addressing certain. Questions and the general anticipation was that House Republicans were not benefiting from a prolonged standoff on this question that over time they would lose leverage in negotiating with time and the Senate side thought that they had more leverage over time and. So the anticipation was, is that these timelines would feed into that. Now what contributed also to this assessment was the expectation that House Republicans would have difficulty getting a measure approved and through the Chamber and they didn't expect that would happen. So both the expectations on where leverage was, but also the feasibility of a measure being passed or kind of merged together and perhaps conflated in some estimates. So what we're seeing now is now that House Republicans passed their measure and this has brought about a more robust debate among proponents of reducing some spending programs and those that are running more of what's called a clean debt