House Republicans want to tie an increase in the debt ceiling due in September/October to a concrete process for corporate tax reform, as reported here and here.  One idea is to couple  a short-term debt limit increase to a mandate for the House to pass a tax-reform plan. The debt limit would increase further when the House passes its plan, and again when the Senate passes a plan.

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Ken Rogoff and Carmen Reinhart (R&R) have a good piece in the Financial Times today, “Austerity is not the only answer to a debt problem.” This, along with other pieces (for example, here and here), is moving the debate over their work in the right direction. On the one hand, recognition that debt still matters, and too much debt (whether the result of or the cause of low growth) is damaging to our politics and our economics. On the other hand, rejection of the idea that there is a universal growth “cliff” when debt exceeds 90 percent of GDP that is at work across countries (an idea their earlier work promoted, unfortunately).  R&R go on to argue that while fixing our debt problem is a central challenge, that doesn’t mean we need aggressive austerity today (though additional stimulus needs to be carefully decided on).

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I’d like to think that the ECB will surprise us tomorrow with a package that includes both a rate cut and measures to increase the flow of credit to the periphery.  That could produce a meaningful easing of financial conditions and a weakening of the euro, both of which are constructive for euro-area growth.

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Cyprus today passed the €10 billion EU-IMF bailout deal by a 29 to 27 vote, so it will receive its first installment of aid next month.  Capital controls (though eased a bit) will remain in place until at least the fall, when the bank restructuring is completed.  New financing gaps are likely to emerge quickly, as the economic assumptions still look too rosy, but the risk of default has diminished for now.

The lawyers who understand the issues much better than me are excited (here and here) by the latest order from the NY Court of Appeals in Argentina’s long-running battle with holdout creditors.  After a hearing last Wednesday that by most accounts went extremely badly for Argentina (it’s probably not the best strategy to ask a court to overturn a ruling because you plan to ignore it, making it ineffectual), the Court issued an order giving Argentina a chance to propose alternative terms to its creditors.  By March 29, Argentina is ordered to provide “the precise terms of any alternative payment formula and schedule to which it is prepared to commit.”

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Does today feel different?  Did the earth shake?  Packing your lunch rather than buy out?

Welcome to the sequester.

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Chris Krueger of Guggenheim Securities today has an excellent piece on how the sequester might be resolved.  A few takeaways:

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The Committee for a Responsible Federal Budget valiantly continues to make the case for “going big” in the fiscal negotiations. I fear their argument is falling on deaf ears:  the window for a fiscal bargain–grand, bland or otherwise–that deals with our long-term fiscal challenge is closing.  The upcoming sequester battle provides one last opportunity to make such a deal.  Yet both Republicans and Democrats say that they are prepared to allow the sequester to take effect on March 1, at least for a while, and they seem to mean it.  A deal that addresses longer term debt sustainability and at least partly restores the sequester cuts remains possible, though unlikely, as part of the continuing resolution (CR) to fund the government from March 28.  That’s the real deadline.

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Reports from the House Republican’s Williamsburg retreat suggest growing momentum in favor of a short-term debt limit extension.  This follows calls over the past few days from several prominent Republicans to raise the debt limit, and soon.  This is good news for markets but not an end to fiscal uncertainty, as the battle shifts to the dual cliffs of the sequester and the continuing resolution (CR) funding the government after March 27.  The odds of a government shutdown in the absence of a CR, at least for a few days, are high.

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