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Can the same House that barely elected a speaker manage to raise the debt ceiling?

It may take pressure from Wall Street.

Going into the new Congress, the debt ceiling was an obvious flashpoint — and that was before a multiday standoff over electing a speaker of the House that has prevented members from being sworn in, let alone debating spending bills.

So far, analysts from Wall Street to K Street who spoke with Grid believe negotiations will be tough and likely include some kind of spending reform, not so different from previous Republican majorities. But there’s a lingering question about how far the hard-liners currently preventing McCarthy from winning the speakership will go — and how much pressure those hard-liners will face from financial markets.

“Our base case was that the debt ceiling would be tougher to clear,” Isaac Boltansky, an analyst at the investment bank BTIG, told Grid. “What we’re seeing now is not in and of itself an event that should alter our view about what this Congress can and can’t accomplish — it’s a reaffirmation. This will rival the do-nothing congresses of lore. This is going to be a particularly dysfunctional Congress.”

The Clinton years featured a lengthy government shutdown, while the Obama years included multiple standoffs over the debt ceiling and government funding. The debt ceiling fight of 2011 resulted in real concessions from Democrats, facing pressure from Republicans on limiting discretionary spending. That offers a blueprint for the incoming Republican House majority — and a warning for Democrats who don’t want to repeat their mistake.

The speakership fight was a “stark confirmation of what we already knew — that the results of the election have empowered and emboldened hard-liners within the conference and weakened the hand of leadership,” Liam Donovan, a Republican lobbyist, told Grid. It’s not clear that “any speakership” — McCarthy or otherwise — could survive putting forward a debt ceiling increase that Democrats could live with. “The challenge over the next six to eight months will be finding some sort of mutually acceptable fig leaf that would avoid a downgrade or default scenario.”

While exactly what would happen if the federal government found itself without authorization from Congress to issue new debt in order to pay its existing obligations — everything from Social Security checks to interest on its existing debt — is unknown, it would be a completely novel shock to a world financial system that runs substantially on the full faith and credit of the federal government to pay its trillions of dollars’ worth of debt.

But Democrats may not be in the mood to deal, viewing the debt ceiling as something that shouldn’t be used as a bargaining chip.

“One thing we will not do is allow extreme MAGA Republicans to try to hold the American economy hostage, or detonate Social Security and Medicare, which many of them want to do, or else default on our nation’s debt for the first time in American history,” House Minority Leader-elect Hakeem Jeffries (D-N.Y.) told reporters on Thursday. “That’s an important issue that’s in front of us, and every day that goes by when Congress doesn’t organize is the day we get closer to a historic default on our debt.”

Boltansky did think the debt ceiling would be raised without a calamitous breach, calling into question the full faith and credit of trillions of dollars of debt issued by the federal government. “Ultimately, my message is that we will raise the debt ceiling,” Boltansky said. “I feel confident that D.C. understands the real-world economic implications of crashing through the debt ceiling. There will ultimately be an agreement. What I’m concerned about is first the incredibly ugly … theater that will proceed any type of deal.”

But since past debt ceiling standoffs have been resolved without a breach, it’s possible that either the White House or the House may be more comfortable holding to their position in the expectation that the other side would cave. Similarly, it’s possible that the financial markets may not start reacting to the possibility of a debt ceiling breach until much later in the process, providing little outside pressure to reach a deal. “I think the X factor here is whether the mess on display wakes up [Wall] Street. They have underreacted in the past assuming it would all work out, which in turn emboldens guys who insist it’s all Chicken Little stuff. They’ll probably have to feel some pain to do what’s necessary,” Donovan said.

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