Congress to Clinton: 'Let's Make a Deal '

THE White House and congressional Republicans will settle their battle over the federal debt ceiling and a temporary continuing resolution that provides the money to keep the government going sometime late tonight.

That's what Prudential Securities analyst Charles Gabriel Jr. predicts. ''Two chances in three,'' he says. Otherwise, as many as 944,000 civil servants out of a total of 4.4 million could be told Monday to stay home. That is the number of bureaucrats described as ''nonessential'' by the Office of Management and Budget in a memo to the Senate Budget Committee last month. The current continuing resolution providing funds to the administration expires at midnight Monday.

Default on the federal debt, in Mr. Gabriel's view, is an ''infinitesimally remote possibility.'' He figures the debt ceiling will be raised to avoid default. So far, the bond market doesn't differ. Prices of Treasury securities haven't gone crazy.

''I don't believe they are going to let the Treasury default,'' agrees Cynthia Latta, an economist with DRI/McGraw-Hill, a Lexington, Mass., consulting firm. Otherwise, she adds, lenders may decide that if Uncle Sam can default once, he can do it again anytime. Interest rates on Treasury securities would rise.

The threat of a massive furlough provides the Republicans with more leverage in getting the White House to deal on a stopgap spending resolution that would continue funding until around Dec. 13, and on a final budget, Gabriel says. If there is no deal, for all practical purposes, whole departments could be shut down.

''It will cause inconvenience to a lot of people,'' Ms. Latta notes. Many will be ''disgusted.''

Neither side would want a lengthy shutdown. ''The GOP,'' says Gabriel, ''will fear that they might lose the spin-control battle in the media and that 'extremist' labels might start to stick; the president will worry that hundreds of thousands of federal employees will be sent home with most Americans noticing no difference.''

The ultimate political pressure for a deal would be the danger that the government could not send out Social Security checks.

President Clinton has threatened to veto the legislation being worked out this week by the Republicans that would lift the debt ceiling temporarily, if it barred the Treasury from moving money out of various trust funds to continue borrowing. The Social Security Trust Fund and other such funds hold some $1.3 trillion in federal securities. These, at least in theory, could be sold to cover debt refundings and some other expenses for as long as two years, says Gabriel. One such refunding is falling due in the middle of next week. The Republicans want to deny this funding option to Mr. Clinton. They want to keep the heat on when negotiations get serious over details of regular appropriations bills for fiscal 1996 (that began at the start of October) and over their seven-year budget-balancing plan. The major appropriations bills have not yet been passed by Congress.

After much hassle, a budget deal will be done, perhaps in mid-December, the experts say. What will it mean for the economy?

Latta figures real federal purchases of goods and services will fall 5.8 percent in calendar 1996. That will trim something less than 0.5 percent from national output. Gross domestic product will still rise 2.5 percent in real terms next year, she predicts.

But she doubts if progress on deficit reduction will start in fiscal 1996. In fiscal 1995, the deficit came in at $164 billion, well below the $192.5 billion predicted in the fiscal 1996 budget.

Should the Republican package include a cut in the capital-gains tax, it could prompt investors to realize their capital gains by selling stock, notes Prudential's Gabriel. This could bring a surge in federal revenues, even at the lower tax rate, reducing the deficit. But it also could temporarily depress stock prices, speculates Gabriel. When this might happen will depend on the legislation, whether it makes the tax break retroactive to January or October 1995, or next month. If the sell-off is in December, stock prices could recover sharply in January, he says..

Gabriel also anticipates a drop in interest rates that would push up bond prices, assuming a legislative package is signed that would end the deficit seven years hence. ''We could have 4 percent to 5 percent long-term bonds by the end of this decade,'' he says. That compares with about 6.3 percent now.