Democrats yank $1B for Israeli missile defense from doomed shutdown and debt patch

House Democratic leaders on Tuesday yanked $1 billion for Israeli missile defense out of a government funding package that will bring them no closer to stopping a government shutdown or avoiding a debt default.

Their funding bill hit a last-minute snag after a group of House progressives revolted over the funding it would’ve provided for the Pentagon to help replenish Israel’s Iron Dome missile defense system. Democratic leaders stripped that provision from the measure just minutes before a procedural vote after pushback from their left flank.

The Iron Dome funding will be included in the annual defense bill instead, according to an Appropriations Committee spokesperson.

Republicans have said they plan to reject the funding package, which includes $28.6 billion in disaster aid — including for storm-battered red states — as well as $6.3 billion in funding for Afghan refugees and an extension of federal cash to keep the government open through Dec. 3. Democrats, eager for a messaging win, are tying that bundle to a measure that would hit pause on an approaching debt cliff through the 2022 midterms.

Two people familiar with the matter said that the group of objectors to the Iron Dome language included the Democrats who pushed earlier this year to cancel an arms sale to Israel amid its shooting war with Hamas militants in Gaza. The funding would have made good on a pledge by the Biden administration to help Israel replace hundreds of interceptors used to knock down rockets Hamas launched from Gaza in the spring.

While the House is expected to pass the measure on Tuesday, Senate Republicans have insisted that they will oppose the legislation in the upper chamber, where all but four GOP lawmakers vowed weeks ago to oppose any action on the debt limit.

“The Democrats have the House, the Senate, the White House, and they have the capacity to raise the debt ceiling,” Sen. John Barrasso (R-Wyo.) said on Monday night. He reiterated the GOP stance that Democrats should handle the debt limit through the filibuster-proof reconciliation process they used to pass their $1.9 trillion pandemic aid package earlier this year and are deploying to enact up to $3.5 trillion of President Joe Biden’s social spending commitments.

The House Rules Committee met Tuesday morning to tee up the funding package for floor action, with Republicans quickly panning the legislation as a waste of time.

“You know you don’t have the votes in the United States Senate,” said Rep. Tom Cole of Oklahoma, the ranking Republican on the panel. “And if any of you think you’re going to break Mitch McConnell on this, good luck with that.”

“I suspect that we’ll be back here again in a week or so with a bill that I can support,” Cole said, predicting that Democrats would be forced to drop the debt limit measure.

Still, the inclusion of billions of dollars in disaster aid will make a vote more politically painful for any Republican. House Appropriations Chair Rosa DeLauro (D-Conn.) said Tuesday that it is “critical” Congress “swiftly” pass the package to support disaster survivors and Afghan refugees, as well as save the nation from a government shutdown on Oct. 1 and the economic fallout from a debt default in the coming weeks.

“This is not a long-term solution,” DeLauro said during the Rules Committee meeting, stressing that the measure buys more time for negotiations on a year-end government funding package that would boost federal agency budgets in the new fiscal year.

Of the $6.3 billion in emergency aid for Afghan allies and partners that House Democrats want to provide, the Pentagon would receive more than $2 billion. About $1.7 billion would go to the Administration for Children and Families within the Department of Health and Human Services to provide emergency housing, English language classes, job training and more.

More than $21 million would go to the CDC for medical support and screening for Afghan arrivals and refugees, while $193 million would be spent on Operation Allies Welcome, which is aimed at helping vulnerable Afghans resettle in the U.S.

The short-term funding bill calls for an accounting of U.S. equipment in Afghanistan, including what was left behind in Afghanistan after the U.S. withdrew troops and effectively ceded the country to Taliban control. House Democrats also want to provide an extra $1B for the Pentagon to replenish Israel’s Iron Dome air defense system.

The stopgap doesn’t provide a short-term extension for certain transportation programs, which are set to expire along with government funding on Sept. 30. An extension likely won’t be necessary if House Democratic leaders stick to their pledge to pass the Senate’s bipartisan infrastructure bill by Sept. 27, although timing is now in flux as progressives push for action on Biden’s massive social spending bill.

Democrats are proposing a debt limit suspension that would last through Dec. 16, 2022. Failure to pass such a measure before the Treasury Department runs out of money — as soon as next month — would lead to “economic catastrophe,” DeLauro said.

Indeed, a failure of Congress to address the limit on how much money the government can borrow would have significant consequences, roiling financial markets, tanking the government’s credit rating and raising interest rates.

Both parties have backed a bipartisan debt ceiling suspension in recent years, including in August 2019, when the Trump administration struck a deal with congressional leaders to waive the borrowing limit for two years.

This time around, Republicans are arguing that Democrats control the White House and Congress, and should therefore handle the issue while they pursue trillions of dollars in spending on party priorities without GOP support.

“They don’t need our votes to spend the money they want to spend, but they do need our votes to pay for it,” Sen. Mitt Romney (R-Utah) said on Monday night.

“That dog won’t hunt,” he said. “They have the capacity to raise the debt ceiling by themselves, just like the capacity they have to spend money by themselves. So we’re not going to help them do either one.”

Connor O’Brien, Tanya Snyder and Burgess Everett contributed to this report.

Unions squeeze pro-labor priorities into Democrats’ spending bill

Unions are lobbying fiercely and spending liberally in support of Democrats’ multitrillion-dollar social spending package — and not just because of the jobs it could create for their members.

Tucked amid the investments in child care, higher education and clean energy are below-the-radar provisions that would make it easier for workers to organize, such as giving the National Labor Relations Board sharper teeth and empowering it to conduct union elections online.

Both of those policies are also included in the Protecting the Right to Organize Act — an overhaul of U.S. labor law Democrats drafted to resuscitate tapering union membership, which is stalled in the Senate.

How much the language in the spending bill could really move the needle on the fortunes of organized labor remains to be seen. It must also survive the Byrd rule, which allows only spending-related legislation to move through the reconciliation process that Democrats intend to use to pass the bill. Democrats have had one of their other top priorities — immigration reform — stymied by the rule already.

Union officials are pouring time, money and energy into making sure the provisions — which they helped shape — make it across the finish line. If they are successful, it could constitute the biggest pro-union shift in U.S. labor law since the National Labor Relations Act was enacted in 1935, labor experts said.

“Labor is not only all over supporting it, it has helped craft it,” American Federation of Teachers President Randi Weingarten said in an interview.

Some on the employer side of the table say the provisions are far too consequential to be tucked into a massive spending bill.

“These are cataclysmic questions of the most fundamental policy that have gargantuan implications for the way labor and management is going to work together or not work together in this country,” said attorney Michael Lotito, who represents employers for the law firm Littler. “And this type of fundamental policy change is being done using a backdoor approach.”

Republican lawmakers have also denounced the tactic.

“The PRO Union Bosses Act was dead upon arrival in the Senate, so Speaker Pelosi and Committee Democrats are manipulating the legislative process to enact portions,” said Rep. Virginia Foxx (N.C.), the top Republican on the House Education and Labor Committee.

Unions and their allies have seen the reconciliation bill as a possible vehicle for the labor provisions since they were introduced in the PRO Act.

“We’ve all known reconciliation was coming for several months,” said Celine McNicholas, the Economic Policy Institute’s director of government affairs and labor counsel, who has been advising supporters on the technical aspects of drafting the language. “At EPI, we’ve been thinking about the penalties since they’ve been in the PRO Act, and any opportunity to move any piece of this we’ve wanted to be helpful with.”

The most consequential language would empower the newly Democrat-controlled NLRB, responsible for implementing the NLRA, to fine offending employers up to $100,000 for each violation.

Currently, the NLRB doesn’t have the authority to penalize businesses. Giving it that power would not only discourage management interference in union organizing efforts, but raise revenue for the spending package’s other provisions.

Supporters argue the revenue-raising aspect will help the union provisions survive the Byrd rule, which is enforced by the Senate parliamentarian.

“Although some of the things in the PRO Act are not about budgetary issues, we thought that actually, there’s a strong case that when you’re issuing penalties on bad behavior, not only is that budgetary in nature, it’s a great way of raising revenue,” said Dan Mauer, director of government affairs for the Communications Workers of America.

Mauer, who is leading CWA’s lobbying effort, points out that a reconciliation package Congress cleared in 1993 included a provision that created penalties attached to a federal tobacco program. “There’s only a couple of provisions that have ever been challenged on the floor that the parliamentarian has actually upheld, and that’s one of them,” he said.

“There is precedent,” McNicholas said. “It’s been done before. That’s why penalties from the get-go were something that both committees of jurisdiction were considering: because there’s a road map here.”

Extensive consultation between unions and Democratic lawmakers in both chambers paved the way for the union language’s inclusion in the House Education and Labor Committee’s portion of the House’s reconciliation text, which lawmakers approved Sept. 10. That legislation also has a section dictating which NLRA violations could trigger penalties, such as misclassifying workers, holding captive-audience meetings and forbidding collective arbitration.

The reconciliation bill also includes provisions that would expand OSHA and Wage and Hour Division penalties, and provide additional funding for the NLRB — $350 million over five years, or $70 million annually — in part to implement the additional enforcement, which a committee aide said lawmakers expect to be aggressive.

The agency would be required to spend $5 million of the new cash on shifting its elections online, a move that Democrats and unions have been pushing for years and which experts say would make it easier for workers to organize.

Unions are confident that Democrats won’t strip the language out even though some Democratic senators have been reluctant to support the PRO Act.

“The things that we were sorting out were largely around making sure that we were aligned on what was actually possible,” Mauer said of conversations with lawmakers. “Even when you find those couple of Democratic holdouts on the PRO Act, none of the stuff that they raised concerns about is included here.”

The unions don’t expect opposition from the lawmaker who is considered key to the fate of the overall spending plan: Sen. Joe Manchin (D-W.Va.).

“The Senate issue-of-the-moment, Joe Manchin, is a co-sponsor of the PRO Act,” McNicholas said. “I cannot imagine that he could defend making any kind of objection to these penalty provisions being included. He’s already on the record in support.”

National unions are pouring millions into advertising to get the spending bill enacted.

AFT, the AFL-CIO’s largest affiliate, has spent more than six figures on ads supporting the bill. NEA, also one of the nation’s biggest unions, spent seven figures on a digital ad campaign promoting the legislation, along with the American Jobs Plan and the bipartisan infrastructure package.

SEIU announced Sept. 14 that it is doubling the amount of money it’s spending on TV and digital ads from $3.5 million to $7 million. The union is also part of a coalition behind a $10 million campaign supporting the White House’s broader infrastructure proposal.

“We’re going to fight like hell in this homestretch,” SEIU President Mary Kay Henry said. “We have our members doing grassroots lobbying, banner drops, intensifying phones, doing more text messaging in their states and districts, while we also have grasstops calls happening with everybody in the House, everybody in the Senate and in the White House.”

At the state-level, local unions such as the New Jersey chapter of Operating Engineers have launched ad campaigns to pressure their respective representatives.

Unions, of course, are still pushing for enactment of the PRO Act itself. A coalition of 40 progressive organizations and unions including SEIU, CWA, UAW and IUPAT launched a six-figure digital advertising campaign in September to pressure moderate senators into backing the bill.

The reconciliation bill “will absolutely make a difference,” McNicholas said.

“Is this a change that would have affected the outcome” of the union organizing vote at the “Bessemer, [Ala.] Amazon facility? That’s a tougher argument to make.”

Dems fear Biden’s domestic agenda could implode

Internal Democratic discord has wounded President Joe Biden’s massive social spending plan, raising the prospect that the package could stall out, shrink dramatically — or even fail altogether.

Myriad problems have arisen. Moderate Senate Democrats Joe Manchin (W.Va.) and Kyrsten Sinema (Ariz.) continue to be a major headache for party leadership’s $3.5 trillion target. The Senate parliamentarian just nixed the party’s yearslong push to enact broad immigration reform. House members may tank the prescription drugs overhaul the party has run on for years. And a fight continues to brew over Sen. Bernie Sanders’ (I-Vt.) push to expand Medicare.

“If any member of Congress is not concerned that this could fall apart, they need treatment,” said Rep. Emanuel Cleaver (D-Mo.), who warned his party “will pay for it at the polls” if it fails in enacting Biden’s agenda. “Our caucus has the feeling of freedom to support or oppose leadership.”

Those headwinds threaten to sap the momentum from this summer, when Biden clinched a bipartisan infrastructure deal in the Senate and found support from all corners of his party for a budget setting up his sweeping spending bill. Now, Manchin is calling for a pause, moderates are resisting key components of the legislation and a new fiscal fight over the debt limit is heating up.

Those dynamics have Democrats essentially looking for an internal reset from a monthslong debate over Biden’s agenda that keeps publicly playing out through leaks, lines in the sand and fights over the topline number.

“I wish that we could all be more on the same page, in terms of timing, of the need to push the [American Families Plan],” said Sen. Mazie Hirono (D-Hawaii). “I’m hopeful we are going to have a meeting of the minds and not wait until next year … we better have a Plan B.”

The multi-problem pileup comes at a critical moment for the party and for Biden, who needs a legislative win amid slumping approval ratings. But though polls show much of his social spending bill is popular outside Congress, winning approval among Democrats’ slim majorities has been harder.

With a three-vote margin in the House and a 50-50 split in the Senate, Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer can’t afford to alienate either wing of their fractious party or else the chances for either of Biden’s signature domestic victories could evaporate all together.

“None of us know where this is gonna go,” said Rep. Dean Phillips (D-Minn.). “This is where leadership is made or broken, plain and simple. And that’s true of the president, that’s true of speakers, that’s true of majority leaders.”

Manchin has been the most outspoken Democrat, publicly asking for a pause on the big spending bill with inflation rising, but the West Virginian declined to lay out his thinking Monday night when asked just how long he wants his party to put the brakes on: “Let’s see if you understand English: not a word.”

It’s unclear exactly how many Democrats are siding with prominent House and Senate moderates. One centrist Democrat up for reelection next year, Sen. Maggie Hassan (D-N.H.), declined to say whether she’s comfortable with the $3.5 trillion spending number on Monday, or whether she agrees with pausing the legislation.

“We are at a critical moment,” said Senate Majority Whip Dick Durbin. “The total amount to be spent has to be negotiated with those who are questioning the $3.5 trillion. So, this is the key week.”

Democrats are broadly rejecting Manchin’s overtures to stall the social spending plan, arguing doing so is akin to killing the bill. If Democrats don’t keep positive momentum behind their effort to fight climate change, improve child care and raise taxes on the wealthy, they worry that the whole thing could fall apart.

“You can’t stop this process. If you stop it it won’t get started again,” said Sen. Ben Cardin (D-Md.). “You’ve really got to keep it moving, there’s no magic date, but as you get closer and closer to other deadlines, this one gets more difficult.”

For progressives, the dissension over a bill they see as vital for delivering on their party’s priorities is enough for some to weigh tanking the bipartisan infrastructure bill negotiated by centrist Democratic senators. Many on the left say they’ve already compromised by agreeing to a $3.5 trillion spending bill rather than $6 trillion or more proposed by progressive leaders like Sanders and Rep. Pramila Jayapal (D-Wash.).

What’s more, the party’s long-running goal of enacting immigration reform is now in major doubt, as there may be no path to including legal status in the reconciliation bill and bipartisan talks have repeatedly stalled out. Sen. Jon Tester (D-Mont.) acknowledged “the immigration stuff is a setback, but certainly not a death knell.”

And progressives have grown increasingly annoyed by what they see as grandstanding by Manchin and Sinema. Just as behind-the-scenes negotiations on the social bill get underway, one of the two prominent moderates keep blasting out statements that jolt the talks and stall what progress has been made, they say.

“I am very tired of it,” said Rep. Jamaal Bowman (D-N.Y.). “I don’t think they are making their decisions based on the needs of the American or even the people in their own state.” He added that they seem more motivated by “corporate interest.”

But Democrats close to the centrists say progressives are vastly overplaying their hand. A group of five to 10 House moderates have signaled to leadership that they would be willing to let the infrastructure bill fail rather than be held hostage by liberals over the broader spending bill. It’s a more attractive alternative to them than having to vote for painful tax increases to pay for an unrestrained social safety net expansion, according to a person familiar with the discussions.

“I think it would be counterproductive to reconciliation,” said centrist Rep. Ed Case (D-Hawaii), speaking about progressive threats to tank the bipartisan bill without the broader spending plan.

“This fiction that linking the two bills will somehow enact leverage on the reconciliation side — I think it’s just that, a fiction.”

Despite the Democratic handwringing, a spokesperson for Biden said the administration is lobbying an array of members and “good progress is being made.

”The administration is “articulating the need to invest in families over big corporations at this crucial inflection point and ensure our economy delivers for the middle class,” said Andrew Bates, a White House spokesperson.

Meanwhile, progressives are not as united as the smaller, tight-knit band of House and Senate moderates that forced votes on the $550 billion bipartisan infrastructure bill in the Senate this summer and a commitment for one in the House next week. The Progressive Caucus has a sprawling membership that is unlikely to vote in lockstep — and may not have the oomph to tank the bill if House Republicans help pass the bipartisan legislation.

“There is absolutely a level where it’s not just something is not better than nothing, but something can actually do more harm,” said Rep. Alexandria Ocasio-Cortez (D-N.Y.) of the infrastructure bill. “That’s why we are holding firm on our line. …This isn’t just a flight of fancy.”

Sarah Ferris and Marianne LeVine contributed to this report.

House GOP unlikely to rescue Biden’s infrastructure bill on the floor

If House Democrats keep pushing their two-track plan for a party-line social spending bill and a bipartisan infrastructure bill, they can’t expect many GOP passengers on that second train.

Fewer than a dozen House Republicans are expected to vote for the $550 billion infrastructure bill — which got 19 Senate GOP votes last month — according to multiple lawmakers in the party. But the infrastructure measure’s House GOP support could triple if Democrats detach its fate from a party-line social spending bill with a multitrillion-dollar price tag, several House Republicans estimated in Monday interviews.

Those numbers are still in flux, the members said, addressing the closely held vote count candidly on condition of anonymity. But the fluidity of the situation illuminates the plate-spinning act that House Democratic leaders are trying to pull off: Depending on how many of their progressives withhold votes from the infrastructure bill, an unexpected uptick in GOP support on the floor could upend the careful plans of President Joe Biden’s party.

“If the $3.5 trillion reconciliation push dies, there will be more GOP support,” said centrist Rep. Don Bacon (R-Neb.), referring to the filibuster-proof process Democrats are using for their separate social spending bill. Bacon, a member of the bipartisan Problem Solvers Caucus, said its members would lend a hand on infrastructure “if there is a standalone vote.”

Of course, Democrats are staying yoked to what they’ve called their two-track approach: linking the infrastructure bill crafted by their centrists to a bigger, progressive-leaning measure that would expand Medicare, boost paid leave and fight climate change. But as that latter reconciliation push teeters amid growing intra-party Democratic discontent, the possibility of two dozen or more House GOP votes for the Senate’s infrastructure deal gives centrists a powerful argument in favor of detaching the tracks.

Problem Solvers Caucus co-chair Rep. Brian Fitzpatrick (R-Pa.), retiring Rep. Tom Reed (R-N.Y.) and Rep. Fred Upton (R-Mich.) are among the House Republicans expected to vote for the infrastructure bill regardless of what Democrats do, according to fellow GOP centrists. As one moderate House Republican put it, the “typical ones” in the conference are set to vote yes.

But Republicans aren’t certain if the infrastructure vote will even happen by Sept. 27, as Speaker Nancy Pelosi indicated following a rebellion last month by a handful of her own centrists. Moderate and progressive Democrats have split on how to proceed with the infrastructure bill, with Sens. Kyrsten Sinema (D-Ariz.) and Joe Manchin (D-W.Va.) coming out against a bill that costs $3.5 trillion and threatening to derail progressives’ efforts.

While Democrats jockey among themselves, House Republicans are starting to confront consequential new internal dynamics of their own. Some in the GOP say they’re noticing blowback from the party base, particularly aimed at the GOP senators who backed the infrastructure bill. That conservative wrath may ultimately have a chilling effect on some House Republicans who are still weighing whether to support the infrastructure plan if Democrats detach it from the party-line bill.

Amid the growing sentiment on the right that voting for infrastructure could help the Biden White House at an inopportune time — with the president’s approval ratings falling after the chaotic U.S. withdrawal from Afghanistan — there could be less appetite in the House GOP to vote yes when the time comes.

“The senators that voted for the infrastructure bill — I can’t imagine how they’re being treated by the base in their home states,” said one House Republican lawmaker from a safe GOP district, speaking candidly on condition of anonymity. “[Lawmakers] have caught more crap for that infrastructure vote, just because it’s perceived as you’re trying to help Biden right now. If you’re doing anything, you should be trying to impeach Biden, in the eyes of the base.”

What remains unclear is how House GOP leadership handles a potential standalone vote on infrastructure. Minority Leader Kevin McCarthy has not tipped his hand to his members whether his team will whip against the bipartisan infrastructure bill, which the California Republican has stated he personally opposes, if Democrats decouple it from their reconciliation plan.

McCarthy, for his part, is messaging that the infrastructure and social spending bills are inextricably linked, despite the possibility that Democrats could be forced to move the former without the latter.

“I view it as one combined,” McCarthy said in a brief interview Monday. “I don’t see how it’s standalone when Pelosi talks about holding it all together.”

GOP leadership has not communicated to its members how it would handle a standalone vote on infrastructure, according to multiple sources. They say they are waiting to see how Pelosi and Democrats move forward.

And the number of GOP votes for the infrastructure bill may yet climb higher by the time it comes to the House floor. Rep. Dusty Johnson (R-S.D.) told Fox News on Monday that “between 50 and 100 Republican votes” could materialize if the Senate-passed legislation were decoupled from the party-line bill.

Another moderate Republican agreed that the numbers could climb higher, saying building trades, the Chamber of Commerce, and the Business Roundtable are believed to be urging lawmakers to vote yes.

“We’re working hard against the $5 trillion package. Now, ultimately how Pelosi brings it to the floor — they haven’t even made the decision — but we’re against that big spending package that will increase inflation and raise taxes,” said House Minority Whip Steve Scalise (R-La.).

Some members on the conference’s right flank say they hope leadership does formally oppose the bipartisan legislation, even if it is separate from the reconciliation bill.

“I don’t know what they’re gonna do,” said Ohio Rep. Jim Jordan, the top Republican on the House Judiciary Committee, who added that he hopes leaders whip a no vote. “We’re all against it.”

Some Republicans are even targeting moderate Republicans with their messaging. Rep. Marjorie Taylor Greene (R-Ga.) is actively threatening to financially help primary challengers to Republicans who vote to support the infrastructure bill. In addition to pushing her position on social media and TV hits — which has reportedly led to a spike in her donations — Greene has also texted a private group text chain for the freshman GOP class to notify her colleagues about her intentions.

Some fellow Republicans, disgruntled by Greene’s move, are privately grumbling that she’s lost sight of their foremost priority: winning back the House next year.

Greene, who said the fundraising from her primary promise has been “amazing,” disputed any claim that she is hurting her party’s efforts to retake the majority by holding on in more purple districts than her own.

“We have to have the right Republicans,” she said.

What Trudeau’s win means for Canada-U.S. relations

OTTAWA — Justin Trudeau’s election win will earn him a congratulatory call from a figure largely forgotten during Canada’s election campaign: President Joe Biden.

But staying on Biden’s radar will be key for Trudeau, as he resettles into the Prime Minister’s Office.

Canada’s election Monday capped a campaign that paid very little attention to foreign policy or the country’s vital relationship with the United States. Trudeau, however, did receive two late-campaign endorsements from Barack Obama and Hillary Clinton.

The few times U.S.-Canada ties surfaced during the 36-day campaign Trudeau found himself forced to defend how well he has nurtured his connection with Biden. Since the U.S. election, the leaders have met face to face just once, during June’s G-7 summit. They have yet to hold an official, in-the-flesh bilateral visit.

A journalist challenged Trudeau during a leaders debate earlier this month on his ability to get Biden on the phone to discuss key issues like the Covid-19 restrictions at the border.

“Did Mr. Biden forget about you?” the journalist asked Trudeau during the French-language contest after she noted the two leaders had only had three official calls since Biden became president last January.

“On the contrary, we spent a whole day in discussions as soon as he arrived,” Trudeau replied during the Radio-Canada event, noting their virtual meeting in February produced a bilateral “Roadmap for a Renewed U.S.-Canada Partnership.

“It was one of his first meetings to establish precisely the course that we will take together. Relations with the United States are very good.”

The election result means Trudeau and Biden can quickly pick things back up.

Biden’s arrival and his personal connection with Trudeau have eased tensions at the top following four tumultuous years in the relationship under the Trump administration.

But Trudeau has come under fire from critics who charge that he is allowing Canada to be an afterthought for the U.S. president.

For example, the prime minister was forced to explain at a campaign stop why Canada was not part of AUKUS, the new defense and technology-sharing group comprising the U.S., U.K. and Australia.

Trudeau told reporters AUKUS was about nuclear submarines and argued that Canada, unlike Australia, is “not currently or any time soon in the market” for them. He stressed that Canada continues to be a strong member of the Five Eyes intelligence alliance, which includes the AUKUS countries as well as New Zealand.

Trudeau’s Liberal platform contains only a few references to the United States, including pledges to launch a “Canada-U.S. Battery Alliance” to help build a supply chain for electric vehicle production, collaborate on border carbon adjustments and cooperate on NORAD’s modernization.

But there are a host of important issues that need resolution between the two neighbors — here are nine key areas to watch as Trudeau forms a new government.

Relationship status: Biden’s arrival in the White House raised questions whether the Democrat could revive what was touted as a “bromance” between Trudeau and Obama.

Maryscott Greenwood, CEO of the Canadian American Business Council, told POLITICO she doesn’t buy the argument that things have been frosty between Trudeau and Biden. After Biden was sworn in, she said the first call Biden took was from Trudeau, and he held his first official bilateral meeting with the Canadian leader.

Greenwood noted, however, that there are questions to ask about the status of the commitments in the leaders’ roadmap. The blueprint lays out about dozens of items — from economic recovery, to climate change, to supply chain resiliency.

Biden has been focused on Covid-19, infrastructure and foreign policy, Greenwood added.

Border closure: One area where critics point to a potential disconnect has been the 5,525-mile border.

Canada lifted its Covid-19 restrictions at its frontier on Aug. 9 for fully vaccinated American travelers. But the Biden administration has yet to welcome Canadians at its land crossings.

In fact, the U.S. announced Monday it will extend its restrictions for another month until Oct. 21.

While U.S. politicians who represent border districts are putting the most heat on Biden to reopen the frontier, Trudeau has been pressed to explain why the two countries have taken different routes.

“I spoke often with Joe Biden about our borders to coordinate as much as possible,” Trudeau said during the Radio-Canada debate. “But it’s not up to the United States to tell us how we should manage our borders and our population. Nor is it up to us to tell Americans how to manage them.”

Climate: Climate policy will be a key area for collaboration — at the United Nations Climate Change Conference and beyond.

It’s top of mind for Biden, who will focus Tuesday on climate change and Covid-19 on when he makes his first presidential address to the United Nations General Assembly.

Trudeau will have just a little over a month to put together a cabinet before world leaders and their officials gather in Glasgow for the U.N. climate conference. The high-profile gathering offers the new Canadian government an opportunity to turn around the country’s reputation of being a climate laggard.

Trudeau’s platform emphasized many green pledges, including a vow to accelerate Canada’s G-20 commitment of eliminating fossil fuel subsidies by 2025. The Liberals say they will do it by 2023.

The Liberals also support a border carbon adjustment. Consultations in Canada are underway and are expected to continue into the fall.

But the Liberals shared little in terms of specifics on the eventual policy, from speed of implementation, scope and what to do with revenues. Canada’s finance department released a background paper last month.

The Liberal platform also makes cutting methane emissions a big priority. Last Friday, Biden announced that the U.S. and European Union set goals to curb methane emissions 30 percent below 2020 levels by 2030.

Buy America: Mark Agnew, senior director of international policy for the Canadian Chamber of Commerce, told POLITICO recently that Biden has “doubled down” on Buy America with announcements throughout 2021.

Agnew said the Canadian business community is also keeping watch for any fallout related to a new role in the White House — “Made in America” director Celeste Drake. The White House’s supply chain reviews, some of which have already been published, is another area of possible concern, he said.

Trade: U.S.-Canada goods and services trade was worth an estimated $718 billion in 2019. That year, the U.S. bought $358 billion in imports from Canada and exported $360 billion north of the frontier.

The USMCA turned one year old earlier this summer and was celebrated at a trilateral gathering in Mexico City. Ahead of that event, United States Trade Representative Katherine Tai welcomed Canada’s International Trade Minister Mary Ng to Washington where they discussed softwood lumber, dairy and reform of the World Trade Organization.

Tai used the occasion to call the U.S.-Mexico-Canada Agreement “the rebirth of our commitment to each other in an ongoing way” and credited the USMCA for making the North American economy more competitive with China.

Softwood lumber remains an irritant between the two countries since the current agreement expired in 2015. Ng had said Canada wants to negotiate a new deal, and Tai has been under pressure to respond.

In a policy brief released last week, the Brookings Institution noted the ways the Covid pandemic has amplified the importance of regional economic relations. The paper identified a handful of priorities for the United States-Mexico-Canada trade deal, including climate, building resilient supply chains and expanding digital trade.

Critical minerals: In their February “roadmap,” Trudeau and Biden committed to build the necessary supply chains to make their countries global leaders in all aspects of battery development and production.

A bilateral critical minerals working group, made up of U.S. and Canadian federal departments and agencies, was active over the summer.

Pipelines: Biden and Trudeau were on different sides of Keystone XL’s cancellation. The two countries are also at odds over Enbridge Inc.’s Line 5 oil pipeline, which is at the heart of a legal dispute between the company and the state of Michigan.

Line 5 has been the subject of shutdown calls along its route in Michigan over environmental concerns, but Canada has called for the pipeline to continue pumping. Michigan recently halted court-ordered mediation with Enbridge.

China and the ‘Two Michaels’: Trudeau has been counting on Biden to help Canada find a way to resolve the prime minister’s top foreign policy issue: Freeing Michael Kovrig and Michael Spavor from Chinese detention.

The two Canadians have been behind bars in China for more than 1,000 days following arrests Trudeau has labeled “arbitrary.” Their cases are widely seen as connected to senior Huawei executive Meng Wanzhou’s battle in a Canadian court against a U.S. extradition request. Meng’s arrest has angered Beijing.

Trudeau uses every opportunity to press the issue with Biden, who made a commitment back in February to help the men.

Canadian property tax on foreigners: The Liberal platform says the party intends to move forward with the country’s first-ever national tax on vacant land and residential property owned by non-residents or non-Canadians.

The plan, first announced in last April’s budget, says the one percent tax is scheduled to come into force Jan. 1, 2022. Public consultations on the proposal closed last week.

The prospect of a tax caught the attention of Americans, especially those who own vacation property in Canada. Rep. Brian Higgins (D-N.Y.) has threatened to push for a retaliatory tax on Canadians with property in the U.S.

Trudeau returns to power with minority grip on Parliament

OTTAWA — Justin Trudeau will hang on to his job as Canada’s prime minister in an election victory Monday that fell short of his main objective: tightening his hold on power.

With his Liberals high in the polls, Trudeau plunged the country into an early election in August in hopes the party could gain at least 15 additional seats in the House of Commons to turn his incumbent minority into a far more powerful majority.

Trudeau, however, looked on track to return to the Prime Minister’s Office with roughly the same number of seats his Liberals had when he called the summertime snap election.

The small margin of victory means Trudeau will continue to have to work with opposition parties to pass legislation and to keep his government afloat.

Some will say the 49-year-old prime minister lost his election gamble. Others would argue that a win is a win.

When Trudeau triggered the election last month, opinion polls suggested his Liberals were within reach of recapturing the majority.

Trudeau proved to be more vulnerable than expected.

Throughout the campaign, opponents repeatedly put a bulls-eye on Trudeau’s decision to call the election in the fourth wave of the pandemic. Canadians have rarely punished prime ministers for calling early elections, but Covid-19 added a different lens to the campaign.

Conservative Leader Erin O’Toole stood between Trudeau and the majority.

O’Toole outperformed expectations at the campaign’s outset, especially for a politician who, unlike the Liberal leader, was far from a household name.

The Conservatives are poised to win the second-most seats and will remain as Canada’s official Opposition.

Trudeau’s third election victory comes at the end of a tight 36-day campaign that was disrupted by anger and hostility on the trail.

The election, he argued, was necessary because of the big decisions Canada faces in the months ahead about how it wants to emerge from the pandemic.

He ran on his record managing Canada’s response to Covid-19. After a slow start, the country is now a world leader in vaccination rates. From Day 1 of the campaign, Trudeau tried to make a wedge out of the issue of mandatory vaccinations in federal workplaces and for air and rail travelers.

The Liberal leader talked up the need for these policies — and contrasted his stance with O’Toole’s.

The Conservative leader encouraged people to get vaccinated and said he had received the jabs himself, but he stressed that health-care decisions are up to the individual. He recommended the use of a full suite of health measures, from rapid testing and screening to social distancing and mask usage.

O’Toole was vague throughout the campaign on whether Conservative candidates were vaccinated, even though his Liberal, NDP and Bloc Québécois rivals all disclosed their parties’ statuses.

The Liberals had spent the early summer pre-election period touring Canada and highlighting progress on their promised C$10 per day child care program.

But polls suggest Trudeau’s campaign faltered at the start.

By around the midpoint of the five-week campaign, polls showed that a surging O’Toole had wiped out Trudeau’s large lead. They were neck and neck.

At the time, Conservatives admitted to POLITICO that the early gains likely had more to do with frustration about Trudeau than the little-known O’Toole’s offerings.

The early release of O’Toole’s plan gave voters something to pore over, while Trudeau didn’t present the Liberal platform for another two weeks — and even then it was criticized for lacking any major new commitments.

Trudeau also triggered the election the day the Taliban entered Afghanistan’s capital of Kabul — and he was grilled on the decision to launch the campaign with the Central Asian country in crisis. Covid was spiking in some provinces, wildfires were burning in British Columbia and the U.S. land border was closed to Canadians.

Even in the final days on the trail, Trudeau was still defending his decision.

O’Toole’s campaign was also a big bet. The former air force navigator guided an effort — which some Conservative insiders have described as almost experimental — that targeted swing voters by setting a left-ward course for the party.

He ran an untraditional campaign, especially in the early days, by bouncing between a studio inside an Ottawa hotel and out on the trail. He used Day 2 on the trail to release the Conservative platform, which pitched O’Toole as “The Man with the Plan.”

He put forward policy pledges that have been unpopular within some wings of the party — like a price on carbon — and he installed a new tone at the top on matters like LGBTQ issues and abortion.

“From the first day of my leadership, my priority has been to build a Conservative movement where every Canadian can feel at home — inclusive, diverse, forward-looking, progressive, worker-friendly,” said O’Toole, who unlike his predecessor Andrew Scheer is openly pro-choice and supports same-sex marriage.

His shift towards the center coincided with a jump in support for the People’s Party of Canada, a right-wing movement led by Maxime Bernier, a former Conservative leadership candidate. There were concerns that O’Toole’s Conservative machine would shed support from its right flank.

During a campaign that could have rightly focused on Covid recovery, climate, energy or reconciliation with the Indigenous in Canada, Trudeau and O’Toole spent more time exploiting wedge issues like gun control and abortion.

In the final week of the campaign, O’Toole had to deal with blowback over a Covid crisis in Alberta, where the fourth wave raged out of control. Alberta Premier Jason Kenney, a friend and former federal cabinet colleague of O’Toole, declared a state of emergency in the province and announced a new vaccine passport system he had previously vowed never to introduce.

O’Toole found himself under fire because, at one point, he had applauded Kenney’s management of the pandemic in Alberta. When repeatedly pressed by journalists to criticize Kenney’s decisions, O’Toole refused to do so.

The win is bittersweet for the Liberal leader. He’s back where he started with a minority government.

While his party retains its hold on power for a third consecutive term, the result is the same, raising new questions about the necessity of a C$600 million election.

Trudeau’s failure to capture a majority will draw questions about his leadership when a new session of Parliament is opened in the fall.

Dems ready an immigration reform backup plan despite long odds

Democrats are vowing to try again for party-line immigration reform after the Senate’s rules referee delivered a decisive blow to their efforts. Yet their Plan B could face a similar fate.

Among the backup plans Democrats are weighing is a big immigration reform swing through a narrow change to existing law, rather than the major new provisions that got nixed on Sunday night. But they’re palpably frustrated by the Senate parliamentarian’s rejection of their push to provide an estimated eight million undocumented immigrants with green cards — a veto broader than many of them expected.

One step that members of President Joe Biden’s party aren’t considering yet is heeding immigration activists’ calls to sidestep the parliamentarian’s ruling, or to replace her altogether. Instead Democrats say they’re focused on getting to yes.

“While I understand the passion and I understand the sentiment behind it, I think it’s not necessarily constructive at this point,” Sen. Bob Menendez (D-N.J.) told reporters Monday. He reiterated that Democrats will present alternatives with the hope of achieving a ”positive result.”

Members of the Congressional Hispanic Caucus were similarly quick to pivot to next steps when they returned to Washington on Monday, less than 24 hours after the Senate referee’s verdict. While they offered few details about how they’d tweak their strategy, those Democrats insisted they could find a way to steer immigration past the Senate’s byzantine rules.

Privately, though, Democrats acknowledge that the parliamentarian has likely closed their path to expanding legal status without GOP votes in their $3.5 trillion social spending plan.

The parliamentarian’s ruling is the latest thorn in Democrats’ sides as they seek to push top progressive priorities into law through the so-called budget reconciliation process, which allows them to sidestep a Senate GOP filibuster. Many in Biden’s party viewed the reconciliation package as their best chance to deliver on their promise to enact immigration reform this Congress, after years of stalled bipartisan talks.

Senate Majority Whip Dick Durbin (D-Ill.) said Monday that Democrats “have a Plan B, C and D” and that they’d be meeting with the parliamentarian again soon. Asked whether he’d support trying to overrule her if Democrats’ back-up plans are rejected, Durbin replied: “I don’t think that’s realistic.”

One alternate policy that Democrats and advocates are floating is narrowing their horizons on immigration by making a simple change to a decades-old “registry” law, according to multiple people familiar with the discussions. That law allows immigrants to apply for a green card if they arrived in the U.S. before a certain year, and that date was last altered in 1986 to let undocumented immigrants who came to the U.S. before 1972 apply for legal status.

Some Democrats say simply updating that law with a more recent year, greatly increasing the number of immigrants eligible to apply for legal status, could pass muster with the Senate parliamentarian.

“The registry is one possibility,” said Rep. Lucille Roybal-Allard (D-Calif.), noting that the law hasn’t been updated since the Reagan era. “We’re looking at all different alternatives. We’re not giving up.”

Menendez confimed his interest in that approach: “We’re not changing the law which was the essence of her arguments that I read in her opinion,” he said. “We are just updating a date.”

Including some kind of immigration reform in the party’s social spending package is a major priority for both the Congressional Hispanic Caucus and the far bigger Congressional Progressive Caucus. That roughly 100-member bloc in the House has outlined immigration as one of five priorities that must be in their package to win support on the left.

In the House, at least two Latino Democrats have vowed to oppose the entire package if immigration reform isn’t included. Still, other lawmakers and aides speculated that those Democrats would be forced to soften their threat if the parliamentarian fully rejects the strategy.

One of those Democrats, Rep. Chuy Garcia, reiterated Monday that “immigration reform needs to be a part of reconciliation.”

The Illinois Democrat also suggested that there could be another option — overruling the parliamentarian, something that Senate Democrats have little appetite for.

“We’d like to exhaust all the avenues before we get to something like that. But we should remember her role is to interpret rules. In the past, the body has overridden the parliamentarian’s recommendations,” Garcia said.

Democrats had argued to the parliamentarian that the budgetary effect of providing permanent legal status to Dreamers, farmworkers, essential workers during the pandemic and those with Temporary Protected Status would be significant enough to include in reconciliation because more people would become eligible for federal benefits. But the parliamentarian concluded that their proposal is “a broad, new immigration policy,” ushering in a societal change that “substantially outweighs the budgetary impact.”

The parliamentarian’s Sunday decision is also likely to renew calls from the left for the Senate to scrap the legislative filibuster, which Senate Democrats don’t currently have the votes to do.

“We anticipated that this would be very difficult,” said Rep. Veronica Escobar (D-Texas).

Asked if there would be calls within the Hispanic Caucus to override the Senate rule official, Escobar said that “we’re not there yet.”

Senate Republicans, meanwhile, praised the parliamentarian. Sen. Thom Tillis (R-N.C.), who is part of a bipartisan working group focused on immigration reform, said Sunday’s decision “dismisses the notion that either party could go it alone” and could motivate Republicans and Democrats to return to the negotiating table on the topic.

The bipartisan working group has met several times, including earlier this summer, but there’s so far little evidence of progress. Senate Republicans have said that they don’t want to address a pathway to citizenship without changes to Biden’s border policy.

When asked whether bipartisan immigration reform was possible this Congress, Tillis offered a wry dose of reality.

“Sure,” he said. “Every bit as the last 20.”

Vaccine supply fears motivated White House booster push

Top advisers to President Joe Biden pushed for his administration to announce a broad booster rollout for September in part because of fears that the U.S. could run short of doses needed to offer the shots to its entire population if vaccines’ protection decreased suddenly, according to two senior officials with knowledge of the matter.

The internal campaign coincided with pleas from international leaders for the U.S. to do more to help lower-and middle-income countries secure initial doses. Biden’s team wanted to make sure the U.S. would have enough supply for the 40 percent of eligible Americans who still needed their first shots and those who would eventually need a boost, the officials said — despite the country’s deep vaccine stockpile.

In a series of meetings over the past two months, Biden’s chief medical adviser, Anthony Fauci, and some of the most senior White House officials argued that the U.S. needed to protect itself, pointing to data from Israel that showed the Pfizer-BioNTech vaccine was becoming less effective against infection and severe disease. And if domestic data had yet to catch up to the distressing reality in Israel, it soon would, those officials argued.

The deliberations underscore the extent to which top Biden administration officials were guided by concerns about future American vaccine supply, not just international data on vaccine performance, in developing their vision of a sweeping booster rollout. They also show how the administration grappled with living up to its commitment to help vaccinate the rest of the world while also safeguarding Americans in the weeks leading up to the Aug. 18 booster announcement.

“No one wants to be the person responsible for not having the doses when we need them,” one individual familiar with the deliberations told POLITICO.

Similar concerns led the administration to delay its first vaccine donations this spring despite an abundance of doses at home, prompting criticism that the United States was hoarding shots while the world suffered. The White House’s booster balancing act comes as the Biden administration this week hosts a global vaccine summit at the U.N. General Assembly, at which U.S. officials will push other international leaders to commit more resources to increase vaccination worldwide.

Meanwhile, the Biden team is facing setbacks at home. On Friday, the Food and Drug Administration’s vaccine advisory committee rejected recommending the use of Pfizer-BioNTech’s booster in people 16 and older, arguing there was insufficient evidence to support that. The panel instead endorsed a narrower plan to give boosters to people 65 and older and those at high risk of severe Covid-19.

The decision came after senior officials at the Centers for Disease Control and Prevention, and outside health experts, argued in administration Covid meetings and through backchannels that the U.S. did not yet have data that indicated it should begin doling out booster shots to large portions of the population — perhaps only for the elderly. They argued the administration should focus on ramping up access to vaccines overseas to prevent the emergence of new variants before giving boosters to otherwise healthy Americans.

At FDA, the agency charged with regulating the shots, two top vaccine experts recently announced plans to retire, in part due to concerns about the Biden team’s top-down booster plans. All eyes are now on the agency, awaiting its decision on Pfizer and BioNTech’s booster application.

On cable television shows Sunday, senior Biden officials — including Fauci — walked back their initial claims about the U.S. needing a broad booster rollout. They said it was always the administration’s plan to follow the FDA’s recommendations and to have the first doses go to the most vulnerable.

“This is why we have a process,” White House press secretary Jen Psaki told reporters Monday. “It is important to hold the FDA as the gold standard.”

“The path out of this pandemic relies on us vaccinating people here at home as well as abroad, and we’ve planned for both since the beginning of the administration,” a White House official told POLITICO. “We have a dedicated supply to vaccinate all Americans, including with a booster if needed, and we will keep that supply in this country so that we are prepared for every scenario.”

The U.S. has a stockpile of about 150 million doses it can use to begin doling out boosters immediately. It has ordered an additional 200 million doses from Pfizer-BioNTech that the companies will begin delivering in October.

The White House official said the administration also has 600 million doses on hand to send abroad in the form of donations. That includes 500 million Pfizer shots the administration ordered earlier this year specifically for international donations.

The administration is set to announce this week that it is purchasing hundreds of millions of more Pfizer doses for countries in need, along with pushing for greater global vaccine aid at the U.N. Covid summit.

Officials at the State Department and USAID have advocated in meetings with the White House officials that the U.S. do more to get doses to lower and middle income countries and have raised concerns about how the administration’s booster plans would impact donations, an individual with direct knowledge of the matter told POLITICO.

The concern among some top officials in the administration is that if the U.S. begins earmarking doses for boosters, other wealthy western countries would follow, tightening an already strained international manufacturing system. Slightly less than half of the total amount of doses the administration promised to donate before the end of the year have made their way overseas, that source said.

“I think what you would end up having is a really stark difference between the low income countries and the rest of the world in terms of their access to vaccination,” said Celine Gounder, an infectious disease specialist at Bellevue Hospital in New York and former Covid-19 adviser to the Biden transition, of a broad booster rollout this month. “You basically would have high income and some low-and middle-income countries that would be getting third doses, and then you would have lower-income countries with nothing.”

Treasury takes on cryptocurrency upstarts as popularity soars

The Treasury Department is moving to rein in a new class of cryptocurrencies whose popularity as a payment method is skyrocketing, citing a need to head off potential risks to consumers and to the financial system.

So-called stablecoins — payment tokens that differ from other cryptocurrencies because their value is often pegged to the U.S. dollar — are drawing scrutiny because they have already been used in trillions of dollars’ worth of lightning-fast transactions and could transform the way Americans pay for things. Treasury and other regulators want to ensure that they’re reliable, even during financial panics.

The new attention is setting up a clash between the emerging crypto industry and financial regulators — and is also feeding tension between the upstarts and more traditional firms like banks, which dominate the payments industry. Yet it’s also a sign that, even as assets like Bitcoin grab headlines as speculative investments, virtual currencies are steadily becoming more enmeshed in the U.S. financial system.

“There are some benefits to consumers that are worth exploring; namely, facilitation of faster payments,” FDIC Chair Jelena McWilliams said in an interview. “But there are also risks if stablecoins are adopted more broadly.”

Because their value doesn’t fluctuate much, stablecoins could gain credibility as a mainstream method of payment, especially if they are adopted for use on e-commerce platforms. Regulators want to ensure that the companies issuing these stablecoins have strong enough assets to back up the tokens, so if users seek to redeem them for cash, they won’t be caught short.

Their use has exploded over the past year. Transactions directly using stablecoins, which were minuscule as recently as 2017, grew from about $250 billion in 2019 to $1 trillion in 2020, according to data from crypto research firm Messari. That growth has accelerated; transaction volume in the first three months of this year roughly matched all of last year, and in the second quarter jumped to $1.7 trillion.

Right now, stablecoins are mostly used as a medium of exchange on cryptocurrency networks, rather than as a replacement for more traditional methods of payment like credit or debit cards. But that could change under the vision of organizations like the Diem Association, which is associated with Facebook and could take advantage of the social media giant’s nearly 3 billion users as a marketplace where its Diem stablecoin could be used to buy goods and services.

Treasury, along with other regulators like the Federal Reserve, the Securities and Exchange Commission and the FDIC, will put out a report within weeks on next steps for regulating these crypto assets. The FDIC insures bank deposits in the event of failures, but stablecoin issuers say they don’t need such backing, arguing that they have adequate assets as reserves.

“What you can find yourself worrying about from a financial stability perspective are not the things that are most risky, but the things that are typically safe, and what can happen to them in a crisis when the thing you thought was safe turned out not to be so,” said a Treasury official, who asked not to be identified because the report hasn’t been released yet.

The coins are popular on decentralized crypto networks where they can be borrowed in exchange for cryptocurrency-based collateral or used as payment in self-executing “smart contracts” that resemble loans or other financial products.

But their broader appeal is speed. Under the traditional U.S. system that handles card payments and direct deposits, transactions are settled en masse three times a day and only during business hours — a costly reality for the millions of Americans living paycheck to paycheck.

The Fed, along with banks, is working to decrease the time it takes people to receive money in their accounts, but in the meantime, an outdated U.S. infrastructure has already spawned companies and products designed to bridge the gap, like Venmo, Square’s Cash App and Zelle.

Stablecoins address a similar problem, since the tokens can be transferred quickly, rather than having to wait for any underlying dollars to hit someone’s account.

But despite the technological benefits, a key question for regulators will be determining whether these assets are actually more like unregulated bank deposits or mutual funds in disguise, only flourishing because they aren’t subject to the same types of rules as those firms.

“The ‘stablecoins’ we see in the marketplace today are anything but stable, and in their current form, lack transparency about what backs them, present heightened financial crime risk, and purport to be far safer than they actually are,” said Paige Paridon, associate general counsel at the Bank Policy Institute, which represents big banks.

Treasury officials say they’d like to create a regulatory framework that would allow stablecoins to be reliable, efficient and inclusive, and that means looking for gaps where current financial rules wouldn’t apply.

The financial firms that issue dollar-pegged stablecoins invest in a variety of assets as backing for their tokens. Some, like the largest stablecoin, Tether, invest heavily in short-term corporate debt, a practice that’s reminiscent of money market mutual funds. That’s caught the attention of the SEC and raises questions about the role these types of coins might play in markets where businesses and the U.S. government itself obtain funding.

But even safer structures of stablecoins could pose headaches for regulators, particularly the Fed, which manages the underlying infrastructure for traditional payments.

“There is a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses,” Fed Governor Lael Brainard, who many progressive groups support to become the next head of the central bank, said in a speech earlier this year.

Avanti Financial CEO Caitlin Long, who heads a not-yet-operating crypto firm that received a “special purpose” bank charter in Wyoming, said this is actually a selling point for stablecoins, whose networks are relatively easy to plug into.

“The winner is going to be the one that’s easiest to integrate with,” she said.

Multiple key firms plan to back their stablecoins only with dollars and U.S. government debt, which comes closer to resembling a bank. Indeed, some stablecoin issuers are pursuing bank-like privileges. Paxos this year received preliminary approval to become a national trust bank. Avanti plans to issue what it sees as “a cash equivalent” once it opens its doors.

Circle, which issues the second-largest stablecoin, USD Coin, is applying to be a national bank, and it says it might not even need deposit insurance because its digital currency is in the process of becoming fully backed by cash and U.S. government debt, unlike traditional bank deposits.

These trends are putting pressure on the Fed to determine whether these unorthodox financial institutions should be allowed access to the traditional payment rails; that is, whether they should be given accounts where they can deposit reserves directly at the Fed.

Such a move might encourage stablecoins to be backed by safer assets by making it less costly for them to hold cash reserves rather than interest-bearing assets. It could also give the Fed more regulatory control over these stablecoins and prevent them from being based offshore, as Tether already is.

“Becoming a novel digital currency bank in the United States acknowledges not only the importance of the U.S. dollar as the underlying reference asset of these innovations, but frankly, the importance of the U.S. as a globally acknowledged standard setter,” said Dante Disparte, head of global policy at Circle.

But having large quantities of reserves sitting at the Fed might encourage the further development of these assets at a time when the central bank is contemplating simply issuing its own digital currency instead, something that could substitute for many of the same technological draws as stablecoins.

Fed Chair Jerome Powell told lawmakers this summer that “one of the strongest arguments” in favor of a central bank digital currency is the notion that “you wouldn’t need stablecoins.”

Some issuers like Circle and Paxos are contemplating that future as well, believing that the payment networks they build for their stablecoins could be used as roads that a Fed digital dollar could drive on.

Dems rope debt to government funding, lassoing GOP into clash

Congressional Democrats are proposing lifting the debt ceiling through the 2022 midterm elections as part of their plans to fund the government into December, leaders said on Monday afternoon.

But that measure, which is set for a House vote this week, faces an uncertain future as Senate Republicans remain unwilling to help Democrats neutralize the looming crisis over the nation’s debt limit when their party controls Congress and the White House.

The release of their short-term spending bill was delayed by several hours Monday amid internal deliberations. But Speaker Nancy Pelosi and Senate Majority Chuck Schumer confirmed Monday afternoon that they would pair the two must-pass measures in an attempt to force GOP leaders to blink in Congress’s latest fiscal standoff.

“A reckless Republican-forced default could plunge the country into a recession,” Pelosi and Schumer wrote in a joint statement Monday. “We look forward to passing this crucial legislation with bipartisan support through both chambers and sending [it] to the president’s desk in the coming weeks.”

Democratic leaders are sticking with their hardball tactics to pressure the GOP, still unwilling to publicly discuss possible alternatives to tackle the debt limit unilaterally. But those conversations are happening privately as the House returns Monday for the first time since mid-August, with just 10 days until the funding deadline and just a few weeks until a possible debt default.

“This isn’t just another partisan fight,” Schumer said on the floor after Democrats announced their strategy. “This isn’t about who can be more macho. … What one party is doing here, everyone knows is deliberately wrong.“

“Democrats will do the responsible thing and vote to extend the debt limit when the time comes,” Schumer said.

Democrats plan to vote on a stopgap spending bill through December, including billions of dollars in relief for hurricane-battered red states across the southeast and funding to help Afghan allies and partners. But the exact end date remains up in the air, with Pelosi and Schumer only saying that the funding would go through December. The bill text has not yet been released.

Senate Minority Leader Mitch McConnell said Republicans will “support a clean, continuing resolution“ that includes disaster aid and refugee resettlement funding, but not legislation to raise the debt limit.

Democrats “do not need our help,” the Kentucky Republican said on the floor Monday.

Senate Republicans on Monday were circulating a clip of House Budget Chair John Yarmuth, with the Kentucky Democrat noting on MSNBC that Democrats can use the reconciliation process to raise the debt ceiling on their own, while passing trillions of dollars in party policy priorities without GOP support.

“Well, ultimately they’re going to have to vote for it or we’re going to have to have a vote and do it by ourselves,” Yarmuth said in the television interview. “We can do it through reconciliation. Leadership has said they don’t want to do that. The reason is, if we do that through reconciliation, we have to specify a number. That only leads to further chaos in a certain period of time.”

Republican leaders have insisted for months that Democrats control Congress and the White House, and therefore have the power to stave off a debt default on their own. But with such slim majorities in the House and Senate, many centrist Democrats aren’t comfortable with owning an upfront increase in how much money the government can borrow — likely the only action allowed by the special budget maneuver that the party is using to pass President Joe Biden’s social spending bill.

Republican fiscal hawks are reveling in the majority party’s indecision.

“This is gonna be a ball. I’m going to have so much fun,” Sen. Rick Scott (R-Fla.) said about the convergence of fiscal cliffs. All but four Senate Republicans have promised to oppose debt limit action, Scott noted, since Democrats have the power to unilaterally raise the borrowing ceiling along party lines using the filibuster protections of the budget.

“They don’t have to negotiate. They have the House, the Senate and the White House. … They don’t have to talk to us,” Scott said.

The Florida Republican said it won’t be difficult for GOP senators to justify voting against a package that would fund the government, waive the debt limit and provide disaster aid. “Oh, it’s easy for me — balance the budget,” Scott said.

Democrats and the White House have indicated that they prefer a bipartisan debt limit suspension, which is akin to hitting pause on the critical issue. Both parties have been more apt to back a suspension in recent years, most recently in August 2019, when the Trump administration, Pelosi and then-Senate Majority Leader Mitch McConnell agreed to waive the debt ceiling for two years.

Democrats have stressed that Republicans are abandoning responsibility when it comes to the $22 trillion federal debt, which both parties have racked up, leaving Democrats to wrestle with a typically bipartisan issue.

“I absolutely believe Republicans should be a part of acknowledging how much they drove up the national debt,” said Rep. Pramila Jayapal (D-Wash.).

Treasury Secretary Janet Yellen has warned that her agency could run out of money as soon as next month, while other experts have estimated that Congress has until mid-November to act. Failing to raise the debt ceiling would create unparalleled economic chaos, roil financial markets, endanger the country’s credit rating, raise interest rates and more.

Yarmuth said he would rather raise the debt limit to an “extraordinarily large amount that we’ll never reach,” so that Congress can avoid the political brinkmanship that often surrounds the debt ceiling every few years.

“But that’s probably not viable politically,” Yarmuth said.

Jennifer Scholtes and Burgess Everett contributed to this report.

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