Fiscal Hawks Returning to Roost in Washington?

 

Trump Pushes Short-Term Fix as Coronavirus Talks Show Little Progress

Talks on the next coronavirus relief package are not going well. Treasury Secretary Steven Mnuchin on Wednesday said the two sides are “very far apart,” and White House Chief of Staff Mark Meadows told Politico he didn’t see any way a deal could get done this week, leaving no hope of avoiding the formal expiration Friday of a $600 federal boost to unemployment benefits.

"Enhanced unemployment insurance provisions will expire," Meadows told reporters Wednesday afternoon after meeting with Democratic leaders.

Given the extensive differences that would need to be hashed out for a comprehensive deal, President Trump on Wednesday called for lawmakers to instead focus on addressing the expiration of the enhanced unemployment benefits and a moratorium on evictions, which expired this past weekend, saying that discussions on other parts of a relief package can come later.

“We ought to work on the evictions so that people don't get evicted,” Trump said. “You work on the payments for the people, and the rest of it we're so far apart we don't care. We really don't care.” A day earlier he dismissed the $1 trillion coronavirus proposal released by Senate Republicans this week as “sort of semi-irrelevant.”

Democrats have rejected taking a piecemeal approach, and House Speaker Nancy Pelosi did so again Wednesday. “A number of Republican senators signaled Wednesday they were open to some kind of short-term, stand-alone deal -- but also said there was no clarity on what that might actually entail,” The Washington Post reports. Senate Majority Leader Mitch McConnell (R-KY) continues to insist that any package must include a five-year liability shield protecting businesses and hospitals from coronavirus-related lawsuits, a provision Democrats oppose.

‘Unable to mate’: Pelosi and Schumer, eschewing the football or baseball analogies that have become common in describing the status of bipartisan talks, instead turned to zoological comparisons. At a Tuesday meeting with administration negotiators, Pelosi compared the Democratic and Republican plans to a giraffe and a flamingo, Politico reports: “They’re both at a zoo. A dumb person may think they could mate for offspring. A smart person knows that’s impossible. That’s our bills. They’re unable to mate.”

With the two sides apparently making little progress, McConnell and Schumer traded barbs on the Senate floor Wednesday, with McConnell calling Democrats’ insistence on extending the $600 weekly unemployment payments “completely unhinged” and suggesting Pelosi was playing election politics.

“This absurd, nasty insinuation by the Republican leader doesn’t pass the laugh test,” Schumer said, according to the Post. “The fact that Leader McConnell would even consider the idea that a political party might deny support for the American people in order to help win an election says more about the Republican leader than anybody else.”

The bottom line: The parties are talking, but they’re not moving, so millions of Americans will suffer a shock to their incomes as their extra jobless benefits lapse.

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Are Fiscal Hawks Returning to Roost in Washington?

After years of relative quiet under a Republican president who slashed taxes and ramped up spending, fiscal conservatives are pushing back against a GOP proposal to spend more than $1 trillion to aid individuals and businesses still reeling from the coronavirus pandemic.

Senate Republicans kept the total cost of their recently released coronavirus relief bill close to $1 trillion, offering a sharp contrast to the House Democratic proposal to spend more than $3 trillion. But even the smaller bill is raising hackles among a group of Republicans who seem to be rediscovering their fiscal conservative roots.

“There is significant resistance to yet another trillion dollars,” said Texas Senator Ted Cruz (R-TX) said this week. “The answer to these challenges will not simply be shoveling cash out of Washington.”

Sen. Ben Sasse (R-NE) accused both Democrats and the Trump administration of ignoring "indefensibly bad" levels of debt in pursuit of political ends. “This proposal is not targeted to fix precise problems — it’s about Democrats and Trumpers competing to outspend each other,” Sasse said.

Some investors are expressing concerns, as well. Goldman Sachs warned Tuesday that high levels of debt-fueled spending is generating “debasement fears” about the U.S. dollar.

Difficult politics: The renewed interest in fiscal hawkery “couldn’t be coming at a worse time for the GOP,” says Bloomberg’s Steven Dennis. The push to limit the next stimulus package could backfire by failing to provide the stimulus that many economists say the U.S. desperately needs. Among other things, it promises to sharply reduce the level of federal support provided to millions of unemployed workers — a reduction that is unlikely to help either the economy or Republicans heading into the fall election.

If the GOP does lose the White House and perhaps even the Senate, the return of fiscal conservativism points toward a role for at least some Republicans to play, Dennis says.

The GOP was sometimes described as “the party of no” during the Obama administration in reference to conservative lawmakers’ resistance to federal spending on recession relief and health care, a role that could see a reprise during a potential Biden administration. “That could position Republicans like Cruz, who was the runner-up to Trump in the GOP nomination race four years ago, for 2024 presidential campaigns based on fiscal discipline,” Dennis says.

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Republican Relief Bill Would Cost $1.1 Trillion: Report

The coronavirus relief bill released by Senate Republicans this week would cost roughly $1.1 trillion over the next 10 years, according to an analysis by the Committee for a Responsible Federal Budget. If enacted, it would bring total coronavirus spending to close to $5 trillion, CRFB said, adding the cost to the roughly $3.7 trillion already enacted by Congress.

The cost of some of the key elements of the bill, according to CRFB:

  • Another round of stimulus checks: $300 billion
  • Small business loans and support: $158 billion
  • Tax breaks for businesses to hire, retain and protect workers: $200 billion
  • Targeted aid for U.S. businesses: $63 billion
  • Health-related spending, including testing and vaccines: $111 billion
  • Enhanced unemployment benefits: $110 billion
  • Education: $105 billion.

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Quote of the Day

“The path of the economy is going to depend to a very high extent on the course of the virus and on the measures that we take to keep it in check. That is just a very fundamental fact about our economy eight now. The two things are not in conflict. Social-distancing measures and fast reopening of the economy actually go together. They’re not in competition with each other.”

– Federal Reserve Chair Jerome Powell, at a press conference Wednesday. The Federal Reserve held rates near zero and warned in a statement released after its policy meeting that the pandemic “will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” Powell also told reporters that “fiscal policy is essential here” and that the historically large response by Congress early in the pandemic is “really helping now” but more likely will be needed.

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Thousands of US Troops Leaving Germany, Costing Billions

Nearly 12,000 U.S. soldiers will be pulled out of Germany, the Department of Defense said Wednesday, reducing the U.S. deployment in the key NATO ally from 36,000 to 24,000. About 5,600 soldiers will be sent to other NATO countries and 6,400 will head to the United States, with the moves beginning as soon as in a few weeks, Defense Secretary Mark Esper said.

President Trump has repeatedly complained about NATO allies not meeting the group’s defense spending target of 2% of GDP, while threatening retaliation. “We spend a lot of money on Germany, they take advantage of us on trade and they take advantage on the military, so we're reducing the force,” Trump said Wednesday. “They're there to protect Europe, they're there to protect Germany, and Germany is supposed to pay for it. We don't want to be responsible anymore.”

Pentagon officials provided a different explanation for the move, CNN reported. Citing U.S. and alliance strategy, Esper said the reshuffling would “strengthen NATO, enhance the deterrence of Russia, and meet the other principles I set forth.”

The troop shuffle will cost billions of dollars, defense sources say, and require the construction of new facilities in both Europe and the U.S. Some of the moves could take years to execute, suggesting that the plan could be reversed if Trump loses reelection.

Cost aside, some critics say the plan is a strategic mistake. “The Administration's plan to remove thousands of U.S. troops from Germany is a grave error,” Republican Sen. Mitt Romney said Wednesday. “It is a slap in the face at a friend and ally when we should instead be drawing closer in our mutual commitment to deter Russian and Chinese aggression.”

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Getting Grilled by Congress May Not Be Biggest Threat to Tech Giants: Analyst

The CEOs of tech giants Amazon, Apple, Facebook and Google got grilled at a virtual antitrust hearing on Wednesday. But one analyst says that the real threat to the industry — from an investor’s perspective, at least — isn’t a public flogging from members of Congress, or the prospect of being forced to break up.

AGF Investments Chief U.S. Policy Strategist Greg Valliere wrote in a note to clients that the greater risk for the companies is an “aggressive new minimum tax that could be enacted within a year” if Joe Biden wins the presidency.

Biden has criticized Amazon in particular, saying that the company “should start paying their taxes.” Amazon has said it pays every penny it owes, but Biden has proposed a 15% minimum tax on profits reported to investors, a plan that would limit corporate use of tax breaks.

Read more at Bloomberg or The Wall Street Journal.

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