US government set for potentially devastating default weeks earlier than predicted
The US government is set for a potentially devastating default weeks earlier than originally forecast, which has immediately increased the pressure to have bipartisan talks to raise the debt limit and avoid a new fiscal crisis.  The Treasury Department says it will now reach the present $18.1tn debt limit as soon as November 5, at which point the government will have run out of borrowed money and be forced into default.  This date change is due to tax receipts being lower than expected and payments to military pension trust funds being higher than projected, resulting in a net decrease of resources available to the US government.  

Debt ceiling: Coming sooner than we thought Presented by the Consumer Credit Card Protection Coalition

DEBT CEILING: COMING SOONER THAN WE THOUGHT — Treasury Secretary Jack Lew wrote to Congress Thursday afternoon warning that the U.S. would run out of room under the debt limit by Nov. 5th, sooner than the late November/early December timeline previously cited by CBO. From the letter: “[T]ax receipts were lower than we previously projected, and the trust fund investments were higher than projected- resulting in a net decrease of resources available to the United States government.

“Based on this new information, we now estimate that Treasury is likely to exhaust its extraordinary measures on or about Thursday, November 5. At that point, we would be left to fund the government with only the cash we have on hand, which we currently forecast to be below $3 0 billion. This amount would be far short of net expenditures on certain days, which can be as high as $60 billion” Full letter: http://bit.ly/1iPjAfG

WHAT IT MEANS — Congress now has just a month (and possibly less) to raise the debt limit. So it would presumably fall to House Speaker John Boehner as a final act to get it done. Could it he add it to highway funding? Or could the new deadline speed up talks toward a broader budget deal taking a December shutdown off the table as well? Boehner will face stiff GOP resistance to a clean debt limit hike (which Democrats will demand absent a larger budget deal) but his lame duck status offers some protection.

The limit will come right around the time of the Oct. 28th GOP debate meaning the harder right candidates (Ted Cruz et. al.) could pressure Congress not to “cave” and agree to a clean hike. All in all, it could be a scary few weeks. And Republican members of Congress could well argue that Lew is fudging the numbers to hike pressure and the “real” deadline is actually much later.

For the Fed, a debt limit hike in October or early November would take the issue off the table as a reason to hold off on a December rate increase. Most members of the FOMC, including Chair Janet Yellen, very much want to liftoff at the December meeting so the new deadline makes such a move more likely. But if there is some kind of accident resulting in the first ever U.S. default (or anything close to it) it’s likely to turn markets upside down, bring the economy to a halt and make it impossible for the Fed to move off its emergency footing.

HAPPY OCTOBER, HOUSE GOP! — POLITICO’s John Bresnahan and Jake Sherman: “The Treasury Department said Thursday Congress must lift the debt limit by Nov. 5, putting House Republicans in a tricky spot during an already hectic fall. It will either be one of Kevin McCarthy’s first tasks as speaker, or one of John Boehner’s last. … For House Republicans, a vote to increase the debt limit is one of the toughest they ever have to cast. Boehner has had to rely on a core group of his members plus House Democrats to get the measure through the chamber in the past few years.

“The battle over the debt limit was so bitter in 2011 that U.S. government’s credit rating was downgraded, an unprecedented move. This year promises to be no different, and Boehner’s resignation, coupled with the expected ascension of McCarthy to the speaker’s chair, is going to make it no easier. The floor vote for McCarthy to become speaker is not expected until late October, shortly before the default deadline. That may make it more palatable for McCarthy for Boehner to oversee the vote.” http://politi.co/1KYMNvs

WELCOME TO JOBS DAY! — Big data point coming for the Fed as it eyes a rate increase later this year (possibly October but more likely December). Anything in the 200K range will keep the Fed on track for a hike. Moody’s Mark Zandi emails: “Payroll employment should increase by 190,000 in September, the unemployment rate should decline to 5 percent, and average hourly earnings should increase by 0.1 percent. The initially-reported soft August employment increase of 173,000 will be revised up substantially by 30,000 jobs. …

“The September employment increase will be depressed by a 10,000 job decline in government employment. This also reflects BLS measurement problems with the increasingly early start of the school year on K-12 jobs. Wage growth will be depressed in September due to BLS measurement issues, but underlying wage growth is slowly coming back to life. Wage gains should pick-up much more substantially by early next year as the economy returns to full-employment.”

Pantheon’s Ian Shepherdson: “Whatever you think is the underlying trend in payroll growth, you probably should expect a modest undershoot in today’s report, thanks to the persistent tendency for the first estimate of September payrolls to undershoot and then be revised higher. The good news is that the initial September error tends not to be as big as in August — the median revision from the first estimate to the third over the past six years has been 49K, compared to 66K — and it has declined recently.

S&P’s Beth Ann Bovino: “We expect job gains to come in at 211,000 in September, once again back over the 200,000 mark, after falling briefly below the month before. It should help stave off market fears that the economic recovery is reversing course but also increase odds that the Fed will raise rates sooner than markets thought. Look for the unemployment rate to edge up to 5.2 percent, and average hourly earnings will likely warm up to 0.2 percent over August and continue to tick higher through this year. Another reason for the Fed to pull the trigger in 2015.”

MORE LITAN BLOWBACK — Many on the left are celebrating his Brookings exit. Barbara Roper, Director of Investor Protection at the Consumer Federation of America, emaisl: “I was interested to see the comments in Morning Money from those who are coming to Robert Litan’s defense. I wonder whether those who are standing up for Litan have read the study in question.

“I have, and what is shocking about it is not that it was paid for by industry but just how poor the quality of the work is. It makes basic and important errors about the rule (suggesting it doesn’t allow individual advisers to earn commissions when it clearly does) and about the DOL’s regulatory impact assessment (suggesting that its cost savings are based on moving brokers off commissions when that is not the case).”

Public Citizen’s Bart Naylor emails: “The shill game where Wall Street pays for ersatz studies under the banner of prestigious universities and think tanks must end. Greenspan played that game for Charles Keating, which didn’t work out well for the country Fannie bought out half the Ph.Ds in the nation, and that worked out worse.”

PAUL SINGER, NOT HIGH MAINTENANCE — From a person close to the hedge fund manager rejecting the idea — mentioned by one source in Thursday’s M.M. — that he is “high maintenance”: “I found that characterization somewhere between amusing and absurd. The guy is one of the biggest bundlers in the country, but what many finance staff on campaigns and candidates are always struck by is that he’s the only one in his league that — when putting on an event — he asks nothing of the candidate other than to show up.

“Most fundraising events demand of the candidate that he do all sorts of calls to help turn people out, recruit people as co-hosts, etc. Paul is well known to those who are truly plugged into the fundraising world that he does it all himself … it’s kind of a dream for the candidate … the candidate just shows up at the event … speaks … and leaves … and their campaign gets a huge cash infusion … Seems like he’s so low maintenance that he’s basically a self-contained and self-sufficient operation.”

GOOD FRIDAY MORNING — Happy weekend all. Email me on [email protected] and follow me on Twitter, a special treat on jobs day, @ morningmoneyben.

DRIVING THE DAY — Treasury Secretary Jack Lew this morning — fresh off the debt limit warning — participates in a moderated conversation with Governor Tim Pawlenty at the Financial Services Roundtable Fall Conference … Jobs report at 8:30 a.m. expected to show a gain of 202K with UE steady at 5.1 percent and hourly earnings up 0.2 percent … Factory Orders at 10:00 a.m. expected to dip 1.2 percent driven down by drop in aircraft orders …

M.M. ERRATA — Yesterday in bleary-eyed confusion we referred to NYSE President Tom Farley as Tim. Management regrets the error.

CONGRATS to the New York Yankees who locked up their 52nd playoff appearance last night with a rain-soaked 4-1 victory over the Red Sox. Yes, M.M. admits to a Yankee-bias. Sue us.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Patrick Temple-West on how both sides in the DOL fiduciary-rule fight are funding research to back their positions [ http://politico.pro/1GngmFU].For Pro’s subscriber-only coverage — and to get Morning Money every day before 6 a.m. — please contact Pro Services at (703) 341-4600 or [email protected].

** A message from the American Bankers Association: Banks are working tirelessly to roll out EMV chip cards to safeguard your financial data against counterfeit fraud. But that’s not all — they’re also investing in cutting-edge solutions designed to protect transactions wherever they take place, including online and with a mobile device. Learn more at letsinnovatenotmandate.com**

EX-IM HEADED BACK TO HOUSE FLOOR — POLITICO’s Jake Sherman and Anna Palmer: “Supporters of the Export-Import Bank have secured enough Republican support to bring an extension of the agency’s charter to the House floor later this month, according to sources involved in the whipping. More than 30 Republicans have signed on to a discharge petition, which would force a vote on reauthorizing the government-backed credit agency. Republicans expect at least a dozen more supporters. The vast majority of Democrats are expected to sign the discharge petition, a rarely invoked procedural maneuver that sidesteps the committee process.

“If the numbers hold, there is nothing the GOP leadership could do to stop a vote on an extension. A renewal of the bank’s charter would likely come to the floor after Oct. 21, when the discharge petition ripens. Rep. Stephen Fincher (R-Tenn.), a longtime supporter of the bank, is leading the effort. Rep. Steve Stivers (R-Ohio), who is a key figure in the whipping effort, said he believes the bill will ‘pass soon.’ …

“House Minority Leader Nancy Pelosi (D-Calif.) told reporters Thursday that Democrats would back the effort if Republicans can round up enough support. … The Export-Import Bank has become a flashpoint in the ongoing battle between conservatives and Speaker John Boehner, who announced his resignation last week effective Oct. 30. Boehner (R-Ohio) has said ‘thousands of jobs’ were at risk if the Export-Import Bank were to shut down, and he supports reforms or a gradual wind-down of the institution.” http://politi.co/1OKoOa6

THE OPPOSITION — A congressional source opposing Ex-Im reauthorization emails: “Resorting to an obscure parliamentary parlor trick that has only been successfully used 3 times since 1980 is a far cry from the demands we’ve heard for ‘regular order.’ Be that as it may, the ‘discharge’ process is a complicated series of parliamentary hoops to jump through. To suggest this is a done deal before a petition has even been filed is nothing but desperate spin from those eager to please K Street. Any Republican signing on to such a tactic is essentially letting Nancy Pelosi be speaker.”

GAME ON: JEB VS MARCO GETS HOT — POLITICO’s Eli Stokols: “For months, the two have studiously avoided criticizing each other, rarely — if ever — mentioning the other by name. But on Thursday, Jeb Bush finally said the words: Marco Rubio. And he threw a few punches at his friend, longtime ally and Miami neighbor. In a television interview, Bush framed himself as a leader, and Rubio as a follower. He also backhanded Rubio with the worst possible diss a GOP candidate could make — Bush compared him to President Obama. ‘Look we had a president who came in and said the same kind of thing — new and improved, hope and change — and he didn’t have the leadership skills to fix things,’ Bush said” …

“For Bush, the criticism represented something of a watershed moment. It marked his first broadside against Rubio, but it also publicly signaled for the first time that he viewed his former protégé as a threat. … The minute the two Floridians joined the race, their mutual admiration society was doomed — sooner or later the two were bound to collide. … [W]ith Rubio’s support growing on the strength of two superior debate performances and increasing concern from his own donors about his sinking poll numbers, Bush no longer has the luxury of sidestepping Rubio” http://politi.co/1Obd9Bd

FED LEAK PROBE EXTENDS TO TREASURY NOMINEE — WSJ’s Kate Davidson and Brody Mullins: “Probes into the 2012 leak of sensitive Federal Reserve policy information are widening further, with a Senate committee scrutinizing a former Fed official nominated for a position in the Obama administration. The Senate Finance Committee has been looking into whether the official, a Treasury Department nominee who worked as a top Fed economist at the time of the leak, relayed market-sensitive information from the Fed to policy research firm Medley Global Advisors, which in turn shared the details with its Wall Street clients …

“The Senate’s expanded inquiry underscores the sensitivity with which lawmakers on Capitol Hill are treating the leak, which has already spurred investigations by a House committee, the Justice Department, market regulators at the Commodity Futures Trading Commission and the Fed’s inspector general. … The Senate committee is looking into whether Seth Carpenter, a nominee for assistant Treasury secretary for financial markets, played a role in the 2012 leak. The panel is charged with approving nominees to senior-level positions at the Treasury Department. A person familiar with the matter said Thursday Mr. Carpenter has told the Treasury Department he never had any contact with anyone at Medley.” http://on.wsj.com/1FJI05e

NEW FRONT IN PUERTO RICO DEBT BATTLE — NYT’s Mary Williams Walsh: “A new front opened in Puerto Rico’s debt battle as the island’s powerful Government Development Bank went to court, seeking $400 million in local property tax revenue it said was being illegally held by a local collection agency. The development bank said the money was crucial to its ability to make coming payments to bondholders. The agency that collects property taxes on the island, the Municipal Revenue Collections Center, or CRIM, appears to have the $400 million in hand.

“But its board decided late in June not to release the money to the bank. The development bank, which handles Puerto Rico’s borrowing and cash flows, said the move was illegal and asked the Superior Court in San Juan to require the agency to turn over the money. The legal documents were filed Wednesday night. … As the two agencies prepared to battle in court, Puerto Ricans woke on Thursday to a new 4 percent tax on professional services provided to businesses on the island. The tax is expected to apply to engineering companies, lawyers, accountants and others who have not already been paying a 7 percent tax on business services” http://nyti.ms/1MLTxQT

EMERGING MARKETS WILL SEE RARE OUTFLOW THIS YEAR — FT’s Jonathan Wheatley in London and Sam Fleming in Washington: “Emerging markets will suffer a net outflow of capital this year for the first time since the 1980s as their economic fortunes darken and the US Federal Reserve prepares to lift interest rates. … The projection will heighten concerns about the prospects for leading emerging economies including China and Brazil that are set to weigh on central bankers and finance ministers when they convene for annual meetings of the International Monetary Fund and World Bank in Lima next week.

“The Institute of International Finance said it expected foreign investor flows to EMs to fall to just $548bn this year, lower than levels recorded in 2008 and 2009 at the height of the global financial crisis. Combined with accelerating outflows from resident investors, it said net capital outflows would amount to $540bn this year, the first time this had been seen since 1988. That follows inflows of $32bn in 2014.” http://on.ft.com/1ObuFp1

ALSO FOR YOUR RADAR —

TYRANGIEL OUT AT BLOOMBERG — POLITICO’s Hadas Gold: Josh Tyrangiel, Bloomberg’s Chief Content Officer and editor of Businessweek, is resigning from the company, he announced on Wednesday. His last day will be Friday. ‘Tomorrow will be my last day at Bloomberg. I’ve spent six years working with some of the smartest and most creative people in journalism, and it’s time for me to take my chips off the table, reflect on my criminal good luck, and think about what comes next,’ Tyrangiel wrote. In a statement, Michael Bloomberg thanked Tyrangiel for his six years.

“Ellen Pollock, currently deputy editor at Businessweek, will take over the magazine, becoming its first woman editor. In 2013 Tyrangiel was promoted to help run Bloomberg Media, launching new verticals with new websites and programs on Bloomberg TV. But last year as Bloomberg returned to his company from City Hall, Tyrangiel and his ambitious projects were reined in. Tyrangiel also had the unenviable task earlier this year of being part of the team that was trying to repair relations with Bloomberg’s Washington, D.C. bureau, which felt marginalized next to the newly created Bloomberg Politics, and complaints of ‘fear and mistrust.’” http://politi.co/1PQKj6x

TRUMP WOULD QUIT IF POLL NUMBERS DROP — POLITICO’s Eliza Collins: “Donald Trump … says he won’t stay in the race if he starts bombing in the polls. “I’m not a masochist,” he said. ‘Right now I’m leading every poll, in most cases big,’ Trump said in an interview with CNBC‘s John Harwood. ‘If that changed, if I was like some of these people at 1 percent or 2 percent there’s no reason to move forward … if I tank, sure, I go back to the business. Why wouldn’t I?’ But Trump has no plans to tank.” http://politi.co/1L7H36V

MEET THE GUY MAKING MARY JO WHITE’S LIFE MISERABLE — Bloomberg’s Robert Schmidt: “Kurt Walters, a 26-year-old with a hipster beard and a resume that features a stint as digital press secretary in a Senate race in Hawaii, has made an unusual career turn: He’s helping lead a grassroots assault on Wall Street’s top regulator. And though he may not know the intricacies of the securities laws, Walters, the campaign manager of a group called Rootstrikers, has some tools that polished bank lobbyists lack. They include an e-mail list numbering in the millions, social-media savvy and a willingness to publicly shame the head of the U.S. Securities and Exchange Commission” http://bloom.bg/1jBT3mN

AUTO SALES HIT 10-YEAR HIGH — WSJ’s Anne Steele and Jeff Bennett: “Automobiles flew off dealer lots last month at the fastest pace in 10 years, but the good times are stirring tension between U.S. auto makers and their unionized workers that threatens to undercut the industry’s rebound. United Auto Workers union members at Fiat Chrysler AutomobilesNV this week rejected for the first time in three decades a tentative agreement as inadequate, and Ford Motor Co. faces a walkout at a big truck factory as soon as Sunday.” http://on.wsj.com/1Ln5cZf

NOW AVAILABLE: POLITICO PRO EUROPE BRIEF — POLITICO Pro, POLITICO’s premium subscription service, has launched a new product dedicated to making sense of European policy and politics through an American lens. Drawing on POLITICO resources in both Brussels and in DC, POLITICO Pro Europe Brief will track and analyze European policy from taxes to trade to mergers and acquisitions, energy and financial services as well as pull back the curtain on who’s influencing who when it comes to politics and regulatory issues. Contact us to learn more about POLITICO Pro Europe Brief.

** A message from the American Bankers Association: Banks are taking on criminal hackers by rolling out EMV chip cards, which virtually eliminate counterfeit fraud by producing a one-time transaction code that can’t be used for future payments. EMV chips are a critical security feature, but we must continue to innovate in order to stay ahead of sophisticated hackers. As crooks increasingly target online and mobile transactions, banks are pioneering cutting-edge solutions — like the “tokenization” technologies used in Apple Pay — to protect your transactions wherever they take place. Ultimately, the only way to protect our data is to stay ahead of criminals by focusing on tomorrow’s threats today. The security of our payments system impacts all of us. The payments system will only be secured if everybody — banks, payment networks, retailers and consumers — work together to fight a common enemy. Learn more at letsinnovatenotmandate.com. **

Follow us on Twitter Mark McQuillian @mcqdc



Ben White @morningmoneyben



Victoria Guida @vtg2



Katy O'Donnell @katyodonnell_



Zachary Warmbrodt @Zachary



Sam Sutton @samjsutton