A government shutdown ‘isn’t really the problem we’re grappling with’: Bipartisan Policy Center President

Jason Grumet, Bipartisan Policy Center President, joins Yahoo Finance to discuss the debt ceiling, a potential government shutdown, and the reconciliation bill.

Video transcript

- Lots going on there on Capitol Hill-- joining me now to break it all down is Jason Grumet, president of the Bipartisan Policy Center. Jason, good to have you on the show again. So let's start with this possible government shutdown. How likely is it that it happens? And what would a partial shutdown even look like?

JASON GRUMET: All right. So it is really important that we separate the shutdown, which is terrible, from the debt limit, which is catastrophic. So there could be, I think, a very short shutdown of the government Friday night going into Saturday, Sunday. And I think that you would then see a short, continuing resolution to get the government running again.

You know, I think that the government shutdown isn't really the problem we're grappling with. I think the problem we're grappling with really is the debt ceiling. Democrats tried to join them together. That did not make the sale for Republicans. Some Democrats have a different approach on the debt ceiling. But I am not particularly concerned about a government shutdown.

- All right. So let's talk about that debt ceiling because Treasury Secretary Janet Yellen certainly did today when she addressed lawmakers. And she used that word, catastrophic, saying that if they don't raise the debt ceiling, the consequences could be catastrophic. Are there any more tools that the Treasury Department has at this point to help the US government meet its financial obligations if that debt ceiling is not increased?

JASON GRUMET: Short answer is no, right? The way this works is that, you know, we cross a kind of statutory limit, and then the Treasury starts to use what are called extraordinary measures to keep paying the bills even though the income's, you know, been diminished. And Secretary Yellen has asserted that we are going to literally run out of the capacity to maintain our sovereign debt on October 15. We have done our own analysis, which is largely consistent.

- So what happens? I mean, investors hear this. It sounds very alarming, the US government to default on its own debt. What does that mean in practical terms for investors?

JASON GRUMET: So again, you know, this is a self-inflicted wound that we just seem like we can't get enough of. It is simply not plausible that the United States of America would dine and dash, right, would, you know, basically, you know, have all of these expenses and just refuse to pay. If we did, it would send chaos through global financial markets. The United States would, you know, put out bonds, and nobody would buy them. And the, you know, ramifications would be chaos that's kind of hard to even predict, right? It's never happened. It never can happen. But even getting close to that potential, we think, has economic damage.

- So what happens here in the end? How do the two sides come to some sort of, you know, level playing field, where we can actually raise the debt limit? I know both sides aren't going to get exactly what they want. But is there some common ground here that they can start to build upon?

JASON GRUMET: Right. So look, here's the-- you know, just to kind of unpack this quickly, there basically have been a-- kind of a detente about this for the last three or four years. That changed recently. Senator McConnell, because the Democrats are basically kind of governing alone when it comes to spending money, has said, that's it. You know, you're governing alone on the spending side. You're governing alone on the debt ceiling. I think Democrats felt like that lacked principle. The Democrats had raised the debt ceiling after the Republican tax cuts. Both parties had contributed to this debt.

Remember, the debt ceiling is not about any future decisions. It's about paying our prior debt. And so I think, you know, the Democrats felt like, you know, this was something we were going to have to do together. Personally, I think that was a tactical mistake. They should have just tucked it into the reconciliation bill. Nobody would have noticed except that it would save global economy.

What the Democrats are going to have to do now is use the reconciliation process to basically have kind of a sidecar for the debt ceiling that will ride separately, but kind of connected to the larger debate over reconciliation. I think what it means is that the larger reconciliation package probably also has to get done by this mid-October date. But, you know, Democrats kind of rolled the dice. And, you know, shockingly, Senator McConnell did not blink.

- You know, something else they need to work out, but perhaps have a better shot at doing on a bipartisan level, is this infrastructure framework bill making its way now through Congress. Do you expect them to follow through on a vote that's supposed to happen on Thursday?

JASON GRUMET: Actually, yes, I do. And again, like the infrastructure bill, this is the way, you know, democracy is supposed to work. It was negotiated. There were compromises. It passed the Senate. There are clearly, on the substance of the bill, the votes to pass the House. And it's gotten kind of tied up in the, you know, ambition of a lot of the Democrats for a much larger package and the desire to link those two things together.

I think the way I break it down, there's kind of three factors. I think, you know, Speaker Pelosi likes the substantive ambition of the big bill. I think she recognizes that the politics kind of don't favor reconciliation. They really favor moving on the infrastructure bill. And that's kind of a wash.

But what is-- influenced the decision is just the mechanics. The reconciliation bill is ready to go. It has been ready to go for about a month. The reconciliation process is still being worked out, particularly as the Democrats recognize they're going to have to now shrink the package. They haven't had the hard discussions about what stays and what goes.

So the reconciliation package is just not ready. And so I think the speaker has to make good on her commitment and pass a piece of legislation that has legitimate bipartisan support and then, you know, move forwards on reconciliation. I think they are going to get some kind of framework agreement, some statement from the Senate about the scope of the reconciliation package, and try to provide as much confidence for progressives that something will happen. But the speaker has said these are now delinked. And I do believe we'll see a vote. And I do believe the speaker will find the 218 necessary for it to pass.