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.

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.

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.

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.

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.”

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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