Debt Limit Deep Dive

Even with President Biden in Europe offering support to Ukraine and Congress in recess, the debt limit still managed to make news last week with the Bipartisan Policy Center’s release of its guestimate that the default date could happen as soon as June.

Debt limit fights have occasionally been ugly affairs, especially with a Democratic White House and Republicans in control of one or both chambers of Congress. However, no matter how ugly these battles have gotten and how many times we have walked right up to the edge of default, both parties ultimately decided it didn't make sense to jump and a deal was struck. 

And while the debt limit crisis looming this summer may well play out this way as well, there are a number of features about the current situation that could make it harder to reach an agreement this time around:

• No clear Republican consensus yet on their "ask"-- and their many often conflicting points of view make it harder to get one.  

• The Republican party has shifted right, and extremely narrow Republican margins in the House leave the speaker little ability to make concessions that anger his base.

• The Democratic party has shifted left, and their thin margin in the Senate leaves Biden less room to tilt toward the middle.

• More Republicans believe Treasury can technically "manage" default through prioritization and this process is a legitimate tool to cut wasteful spending.  

• Partisanship is worse now than previous debt limit fights, and compromising is more difficult since the primary rather than the general election represents the greatest threat.

• Lessons from previous debt limit battles are not helpful to resolution this time:  Democrats’ takeaway with Obama was no negotiations on debt limit and Republicans takeaway is voters’ focus shifts away to other issues over time.

All of these reasons add up to perhaps the most difficult negotiating environment we have seen for the debt limit in modern times—and are a major reason why it is harder to rule out the possibility a deal will not get done before Treasury runs out of money.

At a minimum we will see more than the usual chaos and confusion and perhaps multiple deadlines.  

Even just a few months ago, the curriculum of high school A.P. classes would be considered by most to be more of a snoozefest than a firestorm. 

But lately, it's making front-page news, and it has brought into sharp focus the legislative, legal and political pressures educational organizations across the country are facing. 

FGS Global's Education Practice Group has helped organizations ranging from independent schools to global nonprofits to large universities manage a variety of complex and high-stakes issues, including curriculum criticism, social issues, labor relations, sensitive personnel matters, litigation and more. 

To be prepared for a crisis of any kind, FGS counsels our clients to have—and be familiar with— a crisis communications playbook. Through this process of creating the playbook, important questions and issues surface and can be proactively addressed, such as:

• The Team: Who are the core members of a cross-functional crisis response team? In addition to communications team members, the team will often include legal, human resources, campus security and others, depending on the nature of the crisis.  What level of Board of Trustees involvement is required? 

• The Issues: What are the most significant and likely topics that might impact the institution? Are there issues impacting other peer institutions and how are they responding? 

• The Process: How does the team determine when a crisis has taken place? Who kicks off the process? How does the team communicate in real-time? What are best practices? What is the protocol for determining next steps and who makes the decisions at what stage in the process? 

• The Options: Who are the audiences the institution must keep in mind when considering how to respond to the issue? What channels are available to reach them (email, video, social, in-person, text message alert system, etc.)? What communications tactics should be considered and evaluated? 

• Ongoing Improvement: After a crisis has been averted or subsided, the team should engage in a post-mortem to memorialize lessons learned and consider what could be improved in the future. 

• Scenario Planning: FGS can work with your internal team to develop draft materials such as holding statements for a suite of possible scenarios. The playbook can be pressure-tested with a "tabletop" exercise in which a crisis scenario is simulated for practice and planning purposes. 

If you are interested in connecting with FGS Global's education team, feel free to reach out anytime at Education@FGSGlobal.com.

On the anniversary of Russia’s war in Ukraine, our global Ukraine Taskforce took a look at the state of the war, outlining how the political positions of various countries will evolve and how the war continues to shape the developments in the energy sector and the global business environment.

• There is no end to the war in sight. A war of attrition extending deep into 2023 and perhaps even beyond remains the mostly likely scenario moving forward.

• Russia is betting that its far larger economy – despite the isolation and harm caused by Western sanctions – will generate the capabilities its military needs to ultimately overwhelm the far smaller Ukrainian forces. 

• The United States’ overall support for Ukraine remains strong, albeit complicated by shifts in its domestic political landscape. President Biden and members of his cabinet continue to express staunch support for President Zelenskyy and Ukraine. Forthcoming deliveries of expanded weaponry and other military support are intended to meet the country’s evolving needs in the face of continued Russian mobilization. 

• China will maintain its close relationship with Russia while attempting to improve relations with the West and claiming a neutral position in the war. 

• The swiftness with which many Western companies announced a withdrawal from Russia in 2022 underlined that purpose- and morals-based expectations towards companies have changed – for good. The war in Ukraine has accelerated a trend: Companies need to be more prepared than ever to communicate how their business activities and supply chains relate to larger societal conflicts and conversations.

• Russia will remain marginalized from Western markets for as long as the war continues. Western sanctions will not be lifted any time soon and will likely remain in place indefinitely in sectors even indirectly related to Russia’s military. Even in sectors not deemed of concern for security reasons, rebuilding trust with Russia will take many years.

Find the full analysis here.