According to Tim Geithner, we won't hit the debt ceiling until a few months into 2013. By that time, either the Bush tax cuts will have already expired and the automatic spending cuts will have already begun or the parties will have come to some big fiscal deal and the debt ceiling will have been raised along the way.

Treasury Secretary Timothy Geithner speaks during an onstage interview at the Peterson Foundation 2012 Fiscal Summit in Washington May 15. (JONATHAN ERNST/REUTERS)

According to the Committee for a Responsible Federal Budget, if there's no deal on anything in the new year, the scheduled tax increases and spending cuts "would reduce ten-year deficits by over $6.8 trillion relative to realistic current policy projections – enough to put the debt on a sharp downward path but in an extremely disruptive and unwise manner."

The Congressional Budget Office agrees. They've sketched the no-deal scenario out in their "current law" baseline. Public debt falls from 75.8 percent in 2013 to 61.3 percent in 2022. That's as fast as Paul Ryan says it will fall under his budget.

For all sorts of reasons, simply doing nothing isn't a desirable way to reduce deficits. It would probably throw us back into recession in the first half of next year, for instance. But it would be very odd for Republicans, in those circumstances, to refuse to raise the debt ceiling because America's budgets are on an unsustainable path. The country would, at that very moment, be in the midst of the sharpest bout of deficit reduction in its history.

Wonkbook dashboard:

RCP Obama vs. Romney: Obama +2.5%; 7-day change: Obama +1.2%.

RCP Obama approval: 48.3%; 7-day change: +1.0%.

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Top stories

1) JPMorgan Chase's $2 billion loss may now be more than $3 billion. "The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses. When Jamie Dimon, JPMorgan’s chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan’s distress, fueling faster deterioration in the underlying credit market positions held by the bank...The Federal Reserve is examining the scope of the growing losses and the original bet, along with whether JPMorgan’s chief investment office took risks that were inappropriate for a federally insured depository institution, according to several people with knowledge of the examination." Nelson Schwartz and Jessica Silver-Greenberg in The New York Times.

A class action lawsuit was filed against JPMorgan Chase over its losses. "A class-action lawsuit was filed Tuesday against JPMorgan Chase on behalf of investors accusing the bank of misleading shareholders about the $2 billion in trading losses that have roiled the company this week. Lawyers said the bank did not fully disclose the risky nature of JPMorgan’s trades. The lawsuit alleges the bank falsely told shareholders that its bets on financial instruments known as derivatives were 'hedges' that would help the firm offset overall risk in its portfolio. Instead, lawyers say, the bank was betting purely for profit and did not fully disclose how much money the bank had already lost before by the time it held an April 13 conference call with investors. The result was that JPMorgan’s stock price traded at 'artificially inflated prices,' the lawsuit alleges...The law firm is still seeking a lead plaintiff for the lawsuit and others who bought the company’s stock between April 13 and May 10." Jia Lynn Yang in The Washington Post.

@morningmoneyben: What's another billion between friends?

2) Republicans plan to keep pre-existing condition protections if Obamacare is overturned. "House Republican leaders are quietly hatching a plan of attack as they await a historic Supreme Court ruling on President Barack Obama’s health care law...If the law is partially or fully overturned they’ll draw up bills to keep the popular, consumer-friendly portions in place -- like allowing adult children to remain on parents’ health care plans until age 26, and forcing insurance companies to provide coverage for people with pre-existing conditions...The post-Supreme Court plan -- a ruling should come in June -- has long been whispered about inside House leadership circles and among the House’s elected physicians but is now being discussed with a larger groups of lawmakers....On Tuesday, the major options were discussed during a small closed meeting of House Republican leaders, according to several sources present." Jake Sherman and Jennifer Haberkorn in Politico.

3) The Fed's latest minutes suggested change isn't likely. "The Federal Reserve is solidly entrenched in its current policies and there is little sign that a change is in the offing, according to an account the Fed published Wednesday of the most recent meeting of its policy-making committee. The Fed released a statement after its Federal Open Market Committee met in late April affirming that it would continue its efforts to reduce borrowing costs for businesses and consumers, and the account released Wednesday does not significantly alter that basic message...Still, the account suggests the committee was closer to slackening -- specifically, by reeling in its prediction that interest rates will remain near zero until late 2014. Only four of the 17 Fed officials on the committee said that they expected the Fed to hold rates at the current level through 2014, down from six in January, when the Fed last published their projections. But the committee decided not to shift its official projection." Binyamin Appelbaum in The New York Times.

@justinwolfers: Fed guidance: We have a plan. We don't plan to follow it. But our plan to revise our plans isn't a plan, either.

@BCAppelbaum: Fed minutes confirm that April FOMC meeting was very boring

4) The White House is pushing for a tough interpretation of the Volcker rule. "In the wake of losses at J.P. Morgan Chase & Co., the White House is seeking to ensure a tough interpretation of a regulation designed to prevent banks from making bets with their own money, according to people familiar with the matter. White House officials have intensified their talks with the Treasury Department in the days since J.P. Morgan's losses came to light, these people say--representing the first tangible political impact from a trading mess that has cost one of the nation's most prominent banks more than $2 billion...The Volcker rule, named for former Federal Reserve Board Chairman Paul Volcker, is currently being hashed out by regulators, with the Federal Reserve taking a lead role. Its goal is to stop banks trading for profit, rather than on behalf of clients or for hedging purposes, on the grounds that taxpayers are on the hook if such efforts go awry." Carol Lee and Damian Paletta in The Wall Street Journal.

5) A clash over the debt ceiling looks unavoidable. "President Obama and House Speaker John Boehner (R-Ohio) clashed during a White House meeting on Wednesday...The president convened the meeting of the bipartisan congressional leadership to discuss his 'to-do list' for Congress, but an aide to the Speaker said the bulk of the meeting was spent on other issues, including a pile-up of expiring tax provisions and the next increase in the federal debt limit. Boehner asked Obama if he was proposing that Congress increase the debt limit without corresponding spending cuts, according to a readout of the meeting from the Speaker’s office. The president replied, 'Yes.' At that point, Boehner told Obama, 'As long as I’m around here, I’m not going to allow a debt-ceiling increase without doing something serious about the debt.'...The meeting came one day after Boehner delivered a which he said he would once again demand spending cuts and reforms that exceed any increase in the nation’s borrowing limit that Congress approves." Russell Berman and Alicia Cohn in The Hill.

@tylercowen: This week's possible collapse of the global economy is another reason why another debt ceiling showdown would be insane.

Top op-eds

1) KLEIN: Don't worry about America's 'decline.' "Whenever someone tells me that the U.S. is in decline, I don’t have any idea what they’re talking about. And neither, I tend to think, do they. The claim is maddeningly vague. What does it mean for the U.S. to be in decline? Are we talking about our geopolitical influence relative to other world powers? Our standard of living relative to other nations? Our current standard of living compared with some assumption about its appropriate rate of improvement?...If hundreds of millions of Chinese and Indians continue to be stuck on unproductive farms or in unskilled jobs rather than being freed to develop their human capital, the rest of the world will be denied access to the endless innovations they otherwise might have developed...So, yes, the U.S. has its problems. But I wouldn’t trade our problems for anyone else’s." Ezra Klein in Bloomberg.

2) WILL: Subsidizing student loans is wasteful. "Congress is absent-mindedly creating a new entitlement for the already privileged. Concerning the 'problem' of certain federal student loans, the two parties pretend to be at daggers drawn, skirmishing about how to 'pay for' the 'solution.' But a bipartisan consensus is congealing: Certain student borrowers -- and eventually all student borrowers, because, well, why not? -- should be entitled to loans at a subsidized 3.4 percent interest rate forever...Taxpayers, most of whom are not college graduates (the unemployment rate for high school graduates with no college education: 7.9 percent), will pay $6 billion a year to make it slightly easier for some fortunate students to acquire college degrees (the unemployment rate for college graduates: 4 percent)...Between now and July, the two parties will pretend that it is a matter of high principle how the government should pretend to 'pay for' the $6 billion while borrowing $1 trillion this year." George Will in The Washington Post.

3) MELTZER: Banks need higher capital requirements, not more rules. "The J.P. Morgan mistakes that resulted in a loss of $2 billion or more have awakened some senators to the fact that the Dodd-Frank financial-regulation legislation of 2010 did not prevent errors of judgment and investment losses. But the politicians have drawn the wrong conclusion. They claim that more regulation will protect the public. That's wrong...This debate suggests that regulation is often ambiguous, and none is more so than the Volcker rule, which the regulators themselves have yet to define in detail. Unlike the Volcker rule and other regulations, equity capital requirements are unambiguous and easily monitored in periodic bank examinations or daily inspection of balance sheets...Experience shows that regulation is an inadequate substitute for bank capital. Scrutiny failures by the Securities and Exchange Commission left investors in the Madoff and Stanford funds with huge losses. Regulation failed to protect the public." Allan Meltzer in The Wall Street Journal.

4) FRANKEL: Inflation targeting is dead. "It is with regret that we announce the death of inflation targeting. The monetary-policy regime, known as IT to friends, evidently passed away in September 2008. The lack of an official announcement until now attests to the esteem in which it was held, its usefulness as an ornament of credibility for central banks, and fears that there might be no good candidates to succeed it as the preferred anchor for monetary policy...One candidate to succeed IT as the preferred nominal monetary-policy anchor has lately received some enthusiastic support in the economic blogosphere: nominal GDP targeting. The idea is not new. It had been a candidate to succeed money-supply targeting in the 1980’s, since it did not share the latter’s vulnerability to so-called velocity shocks...Inflation targeting is survived by the gold standard, an elderly distant relative. Although some eccentrics favor a return to gold as the monetary anchor, most would prefer to leave this relic of another age to its peaceful retirement." Jeffrey Frankel in Project Syndicate.

5) WESSEL: Don't forget about the job market's missing workers. "Where have all the workers gone? In the past two years, the number of people in the U.S. who are older than 16 (and not in the military or prison) has grown by 5.4 million. The number of people working or looking for work hasn't grown at all. Is this because members of the big baby-boom generation are now beginning to retire? Have a lot of people dropped out of the workforce temporarily, and are likely to return when there are more jobs to be had? Or are more of the long-term unemployed becoming the never-again employed? The short answer is yes...One thing is clear: The longer people remain out of work, the more risk they will fall out of the workforce altogether. Getting them back to work--or keeping them tied to the job market through training or volunteering or collecting unemployment compensation--would have long-lasting benefits." David Wessel in The Wall Street Journal.

Top long reads

Jamelle Bouie on Mitt Romney's economic policy: "On the tax side, Romney promises a litany of tax reductions, beginning with a permanent extension of the George W. Bush tax cuts. Individual income-tax rates would go down, capital-gains taxes would diminish, the estate tax would vanish, and corporate taxes would drop to 25 percent (from the current level of 35 percent). He has vowed to phase out every tax policy related to both the stimulus and the Affordable Care Act...Past experience suggests that tax reductions are not good medicine for job growth. The Bush cuts, for example, were followed by the slowest job expansion since World War II. Although the economic situation is dramatically worse than it was when Bush took office, Romney intends to reduce taxes even more for high-income earners. You could plausibly say that Romney intends to grow the economy with the old-time magic of trickle-down economics."

Dream pop interlude: Beach House plays "Walk In The Park" live on WFUV..

Got tips, additions, or comments? E-mail me.

Still to come: The Senate voted down a bunch of budget plans; the Obama administration is trying to get states on board with health exchanges; the House passes VAWA; Keystone XL may not stop a highway bill deal; and maybe if a dog just tries again he will be able to get through the door.


Angela Merkel indicated openness to stimulus for Greece. "Chancellor Angela Merkel of Germany said Wednesday that she was ready to discuss stimulus programs to get the Greek economy growing again and that she was committed to keeping Greece in the euro zone, signaling a softer approach toward the struggling country. The fierce rhetorical salvos out of Germany in the past week gave way to conciliatory gestures by Ms. Merkel, who throughout the crisis has shown a propensity for managing through brinkmanship. 'I have the will, the determination to keep Greece in the euro zone,' she said in an interview on CNBC on Wednesday, in what appeared to be an attempt to relax an increasingly tense situation. If Greek officials are looking for 'stimulus to be pursued for growth in the euro zone, which we could pursue in the interest of Greece, we’re open for this,' Ms. Merkel said. 'Germany is open for this.'" Nicholas Kulish and Melissa Eddy in The New York Times.

Greeks continue to withdraw their savings. "The spasm of panic in Greece about a possible exit from the euro zone may have passed, but deposit withdrawals are continuing and Greece's banks face a weeklong wait for the money that will guarantee they stay afloat until a new government can be formed, according to bankers and government officials. Greek savers withdrew over €700 million ($890 million) from their banks on Monday, according to President Karolos Papoulias, a foretaste of what may turn Greece's feared exit from the euro into a self-fulfilling prophecy. Despite no visible signs of anxiousness at Greek bank branches Wednesday, an official at a major bank said things weren't back to normal...The steady outflow of deposits from Greek banks hasn't yet turned into a bank run but economists have long warned that a run on banks could develop if the population fears that a Greek exit from the euro is nigh and that savings in bank accounts could be redenominated in a weak new national currency." Geoffrey Smith and Costas Paris in The Wall Street Journal.

The Senate voted down five budget plans. "The Senate became a political staging ground for meaningless budget votes on Wednesday, as five different budget plans spanning a range of fiscal ideologies failed, the latest chapter in Washington’s dysfunctional spending wars. First up was the House Republican budget, authored by Rep. Paul Ryan (R-Wisc.), which failed on a 41-58 roll call with five Republicans joining all Democrats in voting no. It was a replay of last year, when the Senate defeated Ryan’s budget 40-57. The most obvious political vote of the session was a 0-99 roll call on President Barack Obama’s budget blueprint -- which was offered by Republicans. While that tally is sure to become fodder for campaign ads, Democrats dismissed it as a political stunt since there was no real policy language attached to the Obama budget. Three other budget blueprints, offered by tea-party Sens. Pat Toomey, Mike Lee and Rand Paul, also were rejected in lopsided votes." Scott Wong in Politico.

@daveweigel: Was today Fake Budget Vote Day? Damn, forgot my cowboy hat and airhorn

Foreclosures remain high. "The percentage of American homeowners behind on their mortgage payments fell during the first quarter to the lowest level since the end of 2008. But the share of loans in foreclosure remains stubbornly high, according to a survey Wednesday. At the end of March, 11.8% of all loans were at least 30 days past due or in foreclosure, the report from the Mortgage Bankers Association said. While that is still high by historical standards, it has improved steadily over the past two years, falling from 12.8% a year ago and 14.7% two years ago. The decline in the share of homeowners late on payments was due almost entirely to fewer new cases of delinquency, a sign that households' finances are improving. The percentage of borrowers behind on their mortgage but not in foreclosure fell to 7.4% at the end of March from 8.3% a year earlier...Some 4.4% of mortgages were in some stage of foreclosure at the end of March, unchanged from the previous quarter and down only slightly from 4.5% a year ago." Nick Timiraos in The Wall Street Journal.

Housing starts rose last month. "U.S. home building grew in April, the latest sign that the recovery may be strengthening in the long-struggling market. Separately, U.S. industrial output rebounded in April, a sign of healthy demand for factory goods. Home construction increased 2.6% from March to a seasonally adjusted annual rate of 717,000, the Commerce Department said Wednesday. Year-over-year, starts were up nearly 30%. Economists surveyed by Dow Jones Newswires had forecast April's housing starts would grow to a seasonally adjusted annual rate of 685,000. That would have been a 4.7% jump from the prior month's previously reported figures. March starts, however, were revised significantly upward to a rate of 699,000 starts from a previously reported 654,000. The newly stated data reflects a 2.6% decline from February. Construction of single-family homes, which made up 69% of housing starts last month, grew 2.3% in April and was up 18.8% from a year ago." Eric Morath and Alan Zibel in The Wall Street Journal.

@grossdm: Can't believe tweeps aren't more excited about housing start figures. Good things happen when home construction rises

Tumblr interlude: Brad Pitt eating things.

Health Care

The Obama administration launched a new effort to get states on board with exchanges. "The Obama administration on Wednesday made a fresh bid to coax reluctant governors to work with the federal government to help enact the health-overhaul law...To get more states to go along with the idea, the Obama administration is allowing states to divide the responsibilities of managing the new exchanges with the federal government. States will have until Nov. 16--or 10 days after the presidential election--to pick that option, officials said Wednesday. States that work with the federal government could help administer some or many key aspects of their exchanges, the administration said. Those include determining which insurance plans the exchange contains and identifying lower earners who qualify for the Medicaid program or subsidies to help them purchase private plans...States that don't opt to work with the federal government at all will have to use a fully federally run exchange beginning in 2014." Louise Radnofsky in The Wall Street Journal.

Domestic Policy

The House passed its version of the Violence Against Women Act. "Defying a veto threat from the White House, the House approved its version of the Violence Against Women Act amid furious backlash from Democrats and women’s groups that it wouldn’t do enough to protect abused victims. Wednesday’s vote to renew the 1994 anti-violence law was 222-205. Twenty-three Republicans voted against the bill, while six Democrats voted for it. Vice President Joe Biden, who wrote the law as a senator, said after the vote the measure would water down key protections for victims...The Violence Against Women Act was enacted in 1994 and renewed twice since. This year, Senate Democrats added a host of protections that would cover undocumented immigrants, same-sex partners and Native American women, and the bill passed the chamber 68-31 in late April. Democrats and the Obama administration want the House to pick up the Senate’s version of the bill." Seung Min Kim in Politico.

A Senate panel passed a domestic partner benefits bill. "A week after President Barack Obama publicly proclaimed his support for same-sex marriage, a Senate panel easily passed a measure that would extend benefits to gay and lesbian partners of federal workers. On a voice vote, the Senate Homeland Security and Government Affairs Committee approved the Domestic Partnership Benefits and Obligations Act. The bill is intended to give the same benefits to same-sex partners that spouses of straight federal workers currently receive. Among the benefits that would be provided to same-sex partners are health care benefits, long-term care, family and medical leave, and retirement benefits, according to Sen. Joe Lieberman (I-Conn.), the bill’s chief sponsor who has repeatedly introduced the measure in previous Congresses...According to Lieberman’s office, one of three employers offers benefits to their workers’ domestic partners, as well as 60 percent of Fortune 500 companies and half of employers with more than 5,000 employees." Seung Min Kim in Politico.

Adorable animals who lack basic life skills interlude: A dog can't understand why he can't get through the door.


Republicans may not insist on Keystone XL inclusion in the final highway bill. "Republicans are pressing for approval of the Keystone XL oil pipeline in a final House-Senate transportation bill but appear unlikely to draw a line in the sand that jeopardizes the infrastructure legislation. While the proposed Alberta-to-Texas pipeline is a top GOP and oil-industry priority, Republicans might have incentive to keep the matter unresolved, enabling them to continue using Keystone as a political weapon during the campaign season...GOP lawmakers are nonetheless calling the pipeline a top priority, and express confidence that there is growing support for including it in a final transportation bill. But asked if they would insist on Keystone as a condition for an agreement, several GOP lawmakers said they didn’t want to discuss 'hypotheticals,' while others hinted that they they’re flexible on the matter." Ben Geman in The Hill.

@BobCusack: Prediction: Highway bill gets signed into law w/o Keystone. GOP loses the policy battle, but uses Keystone relentlessly on campaign trail.

The U.S. may announce 'anti-dumping' tariffs on Chinese solar panels. "Renewable energy companies around the world are awaiting a decision Thursday by the U.S. Commerce Department on whether to impose anti-dumping tariffs on solar panels imported from China, as a little-noticed policy shift by the department last year has made the outcome of the case unusually hard to predict. Chinese companies grabbed nearly half the U.S. market for solar panels last year through aggressive price cuts that helped make solar energy considerably more affordable for U.S. families and electric utilities. But solar panel manufacturers in the United States have accused the Chinese companies of 'dumping' panels: selling them below the cost of manufacturing and shipping them, so as to seize market share, drive competitors out of business and raise prices later. Any anti-dumping tariffs would be in addition to anti-subsidy tariffs of 2.9 percent to 4.73 percent that the department imposed in March on solar panels from China." Keith Bradsher in The New York Times.

Obama will reportedly push for a coordinated release of emergency oil stocks. "President Obama will press Group of Eight leaders this weekend to support a coordinated release of emergency oil supplies, according to a news report. Obama will discuss the potential oil release during a G8 summit at Camp David on Friday and Saturday, Kyodo News, a Japanese news outlet, reported. White House officials have said for months that releasing oil from the U.S. Strategic Petroleum Reserve (SPR), a 696-million-barrel oil stockpile stored along the Gulf Coast, is 'on the table.' Reuters, in a series of stories earlier this year, reported that U.S. officials have approached French and British officials about coordinating an oil release...Obama released 30 million barrels of oil from the SPR last summer in order to make up for supply losses from Libya. At the time, administration officials said the supply losses were threatening the economic recovery. The president tapped the SPR in conjunction with International Energy Agency nations." Andrew Restuccia in The Hill.

@AndrewRestuccia: Talk of Obama tapping the SPR is putting the GOP in the awkward position of having to say it's unnecessary because gas prices are dropping

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.