Longbrake Comments on Congress Showdown

In an interview at University of Maryland’s Robert H. Smith School of Business, Executive-in-Residence at the Center for Financial Policy Bill Longbrake talks to Michelle Lui, the Center’s Assistant Director, about the impending April 8th budget deadline for the extension of the current continuing resolution, the process of increasing the debt ceiling, and the 2012 federal budget.

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Longbrake Comments on Congress Showdown in March 2011 Interview

Longbrake says that the debate in Congress on the extension of the current continuing resolution is very much a political story at the moment. Democrats and Republicans are in continual competition with each other for political advantage, so that leads to different views on how best to deal with the deficit problem. With $10 billion in spending cuts as part of the previous two continuing resolution extensions on the books, the two parties are in disagreement on the level of further cuts for the rest of the fiscal year 2011.

“The stage is set potentially for a stalemate,” comments Longbrake. Speaking to the potential government shutdown if an agreement is not passed by April 8th, he says it “could occur just as part of the poker game being played here in terms of trying to obtain political advantage.” He believes there will be a resolution, probably just short of shutting down the government, but it will be close. Spending cuts will probably be in the ballpark of $40 billion, a compromise between the different levels the two parties are seeking.

The debt ceiling refers to the ability of the US Treasury to borrow money to finance federal spending. Longbrake says that this ceiling will technically be reached by the end of April, but the Treasury could employ strategies to buy 60 days, pushing the realized deadline back to June. If it is not raised by that time, “you have more than a government shutdown; you have a government that cannot pay its bills and that will actually have financial market implications.” He believes that this will not occur, but it will be resolved only at the last possible moment.

The deadline for passing the fiscal year 2012 budget is April 15th, though the two parties are far from a resolution. Longbrake predicts that there will be “something very specific on the table from the House, nothing from the Senate, and we’ll see how this game plays out on fiscal 2012 over the next several months.” He believes that the House resolution will not only include significant cuts in spending, but will also attack entitlement programs.

In the full length video, Longbrake also discusses the Middle East/North Africa political crisis, the U.S. economy’s possibility for self-sustaining growth, and the continuing European sovereign debt crisis. He further provides some important lessons that can be learned from previous crises while also expressing why he believes it is difficult for policymakers to apply these lessons.

The Center for Financial Policy was launched in November 2009 and develops thought leadership in financial policy that impacts corporate performance, capital allocation and the stability of the global financial system. Located in both College Park, MD and in Washington, D.C. at the Smith’s School’s campus in the Ronald Reagan Building and International Trade Center, the center is well-situated to take a leadership role with its globally recognized faculty and its extensive relationships with key policymakers, practitioners and academics.