Trump Shifts Millions from Disaster Relief to Border

Plus, is a big jump in federal spending inevitable?

Trump Administration Shifts Millions from Disaster Relief to Border

The Trump administration plans to use at least $155 million in disaster relief funds allocated to the Federal Emergency Management Agency to pay for immigration detention and processing facilities on the border with Mexico, according to a report Tuesday from Julia Ainsley and Frank Thorp of NBC News.

The Department of Homeland Security has informed Congress that it plans to reprogram $271 million to support activities at the border, which includes the FEMA funds that will be transferred to Immigration and Customs Enforcement. DHS will also shift $116 million previously allocated to the Coast Guard to ICE in order to pay for an additional 6,800 beds for detainees.

Rep. Lucille Roybal-Allard (D-CA), chair of the House Homeland Security Appropriations subcommittee, said she opposed the reprogramming of funds. “I object to the use of funds for that purpose because the Department has provided no substantiation for a claim that this transfer is necessary due to ‘extraordinary circumstances that imminently threaten the safety of human life or the protection of property,’” Roybal-Allard said in a letter, referring to rules that govern the reprogramming of funds.

The shift comes as a tropical storm threatens Puerto Rico and hurricane season kicks into high gear. President Trump commented on the approaching storm Tuesday, tweeting, “Wow! Yet another big storm heading to Puerto Rico. Will it ever end?” Trump also falsely claimed that “Congress approved 92 Billion Dollars for Puerto Rico last year, an all time record of its kind for ‘anywhere.’” In fact, Congress allocated about $42 billion to the island, and only about $14 billion has been spent, according to The Washington Post.

House Democrats Prepare for Pre-Christmas Funding Crunch: Reports

When they return from their August recess on September 9, lawmakers will have little time to finalize appropriations bills needed to fund the government past the end of the fiscal year on September 30. Faced with the prospect of another government shutdown, House Democratic leaders are reportedly preparing a short-term extension of federal funding to keep the lights on until late November or early December.

The Democratic-led House has passed 10 of the 12 required spending measures for fiscal 2020, but the budget deal reached by lawmakers last month will require adjustments to the funding levels in those bills since it provides about $15 billion less for non-defense programs and about $5 billion more for the Pentagon than Democrats had allocated, according to Politico. The Republican-controlled Senate, meanwhile, has yet to take up any 2020 funding bills after leaders in that chamber decided to wait for the Trump administration and House Speaker Nancy Pelosi to hammer out their two-year budget deal.

“Senate Appropriations Chairman Richard Shelby has set a goal of enacting the two largest spending bills before the Sept. 30 deadline, taking care of funding for the departments of Defense, Education, Labor, and Health and Human Services,” Politico’s Jennifer Scholtes reports. “The Alabama Republican has even floated the idea of coupling those two measures with the bill that funds the Department of Energy and water programs, arguing that there is a ‘nuclear nexus’ between programs in the energy legislation and the defense bill.”

Those three spending bills account for a majority of federal spending, but the House and Senate packages will need to be reconciled, and Shelby’s plan to have his committee start marking up its spending measures on September 12 means there will be relatively little time before the end of the fiscal year for such negotiations.

As a result, Democrats reportedly expect that a stopgap spending bill will likely be needed. House Majority Leader Steny Hoyer reportedly told House Democrats on a conference call last week that such a measure should extend funding through November 22, while other Democrats have reportedly predicted that the extension would run through December 6. The House is scheduled to adjourn for the year six days later.

Is a Big Jump in Federal Spending Now Inevitable?

A group of influential investors and policy wonks says that a major expansion of government spending appears all but inevitable in the next few years.

Barry Ritholtz, a Bloomberg columnist who runs an eponymous wealth management firm in New York, published a piece in Bloomberg Businessweek Tuesday that describes the most recent session of “Camp Kotok,” an informal, wine-fueled gathering of bankers, analysts and investors that occurs each summer in Maine.

The focus of this year’s meeting was the Federal Reserve’s struggle to deal with a slowing economy against a background of low inflation, plunging interest rates, a burgeoning trade war and a president who has sought to undermine the bank’s independence, Ritholtz writes.

At a debate led by analyst Jim Bianco of Bianco Research, the group focused on a controversial but increasingly prominent approach to federal spending known as Modern Monetary Theory, or MMT, which holds that the government should spend as necessary to move the economy toward full employment without worrying about growing deficits, as long as inflation remains low.

Given the weak hand the Fed is currently playing, with little room to cut interest rates and a lack of policy tools to deal with trade conflict, the participants largely agreed that policymakers will at some point in the not too distance future pick up the tools recommended by supporters of Modern Monetary Theory:

“The surprising consensus was that whether it comes from the political Left or Right, MMT is inevitable,” Ritholtz writes. “Expect future infrastructure projects, Medicare for all, and/or tax cuts to be funded by bonds authorized by Congress, issued by the Treasury, and purchased by the Federal Reserve."

That’s not to say that the Kotok campers were in favor of such a fiscal turn. To the contrary, most of the participants took a decidedly skeptical view of the scenario, Ritholtz reports, as you might expect at a gathering of bankers: “The group takeaway was as simple as it was snarky: ‘Free money! Whatever could possibly go wrong with that?!’”

At the same time, the campers recognized other problems that may be more pressing, including the looming threat of negative interest rates. The U.S. economic system is based on positive rates, Ritholtz notes, and “if rates flip negative in the U.S., as they already have in Germany and Japan, no one knows what will happen.”

Budget Watchdog Pitches Plan to Fight the Next Recession Without Increasing the Debt

Sooner or later, the United States will enter another recession. As we told you last week, when that time comes, the focus will be on fiscal policy and how or whether policymakers step up to boost the economy at a time when deficit are already near $1 trillion a year and projected to climb still higher. What’s a budget hawk to do when faced with the prospect of a painful recession and the need for fiscal stimulus to fight it?

The Committee for a Responsible Federal Budget proposed an answer Tuesday by issuing what it calls a “responsible plan to combat the next recession.” The nonpartisan fiscal watchdog group says that “policymakers should not allow the very serious threat of rising long-term debt to prevent them from considering near-term stimulus if the economy weakens substantially.” Instead, it urges them to prepare a plan ahead of time that pairs near-term stimulus (and deficit increases) with longer-term deficit reduction.

The plan, meant to be illustrative rather than prescriptive, extends unemployment benefits, reduces the payroll tax for two years, temporarily increases Medicaid payments to the states and calls for $300 billion in infrastructure investments. In all, that stimulus would cost about $600 billion, though that figure could vary significantly depending on the depth of the economic downturn and the political considerations that will determine the details of any stimulus package.

To offset those costs over the longer term, CRFB offers two paths: One would essentially cover the additional costs of a stimulus plan over 10 years (while reducing deficits by as much as $2 trillion over a longer period of time) while the other would more aggressively bring down deficits. “While it would be counter-productive to offset the cost of stimulus measures while the economy is in recession, it would be prudent to pay for their costs over time so they do not add to the debt,” CRFB says. “Ideally, a bill to rescue the economy would reduce debt over the long term, which would both improve long-term growth and leave the nation better prepared for future recessions.”

The state of U.S. politics would likely make both paths difficult and contentious, especially since the pay-fors in both CRFB plans include switching to a measure of inflation that’s expected to reduce the growth of Social Security benefits over time. The more aggressive plan would also change the retirement age and raise Social Security taxes to make the program solvent over 75 years. And to pay for infrastructure projects, the modest plan calls for a gas-tax hike while the “bold” plan would introduce a carbon tax. None of those recommendations would be easy to accomplish given the current state of our politics.

The bottom line: The details of a stimulus plan and any offsets would, of course, be of tremendous importance when faced with an economic downturn, but for the moment they may be less critical than the broader point CRFB raises: Concerns about the rising deficit don’t have to keep policymakers from giving the economy the jolt it needs in the next economic downturn.

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An Air Force space plane has been in orbit for a record 719 days and we don't know why.



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