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US Policy

A big political turnaround last week. It has been a defining week in the Democratic primaries, with four key moderates (Minnesota Senator Amy Klobuchar, former Indianapolis mayor Pete Buttigieg, Beto O’Rourke, and, after Tuesday, Michael Bloomberg) all backing former Vice-President Biden. Supporters of the three who dropped out before Tuesday’s vote seemed to rally behind Biden. Surprisingly when Massachusetts Senator Elizabeth Warren left the campaign on Thursday she failed to endorse Vermont Senator Bernie Sanders, who seemed like her closest political ally in the progressive wing of the party. Sanders appears isolated on the left wing of the party, and is again the outsider trying to get in, a similar role to his revolutionary campaign of 2016. Hillary Clinton supporters blame bitter Sanders’s supporters who didn’t vote in 2016 as contributing to her loss, and Democrats will be on their guard this year to try and bring a conclusion to the campaign that has the party as united as possible. The selection of a veep candidate could play a role in this process. It seems likely that both Biden and Sanders would choose a woman as a running mate after all the female candidates failed to make the final cut. Tuesday brings six more primaries with Michigan and its 125 delegates the biggest prize. Furthermore, as Michigan has become a key swing state, a primary victory there strengthens the winner’s story that he is the best candidate to defeat President Donald Trump. Coronavirus The Congress and White House moved quickly to pass the $8 billion funding bill for fighting the coronavirus outbreak. The President’s initial proposal for $2.5 billion was quickly replaced with a bipartisan agreement for the higher level. However, the bill only provides assistance for immediate medical needs ranging from testing kits to aid to local health authorities as they staff up to face the crisis. The legislation contains money for accelerated research but, as the medical experts have cautioned, that is 12 to 18 months away under the most optimistic forecasts. The bill does nothing to help communities and businesses that could be hard hit by the spread of the disease as Americans cut back activities from travel to eating out. There are already some discussions of a broader stimulus bill, but deciding how money is distributed, picking winners and loser, and keeping it out of politics in an election year will be a challenge. However, a stimulus bill aimed at the crisis could be in the tens if not hundreds of billions of dollars and potentially be a boost to markets. Figure: Top Trump Tweets The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!— Donald J. Trump (@realDonaldTrump) March 3, 2020 There can be few things worse in a civilized, law abiding nation, than a United States Senator openly, and for all to see and hear, threatening the Supreme Court or its Justices. This is what Chuck Schumer just did. He must pay a severe price for this!— Donald J. Trump (@realDonaldTrump) March 5, 2020

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Iowa Primary Could Winnow Democratic Field; SOTU Up Next

While the coronavirus grabs all the headlines, it’s going to be a big week for politics and policy, and it will pay for investors to pay attention. Next week has two events that are the opening of the 2020 election year: first votes cast in the Iowa Caucuses and the President’s State of the Union address. Iowa On Monday, Feb. 3, Democratic voters in Iowa will vote in the primary. At this point there seem to be up to five candidates: former vice-president Joseph Biden, Senator Bernie Sanders, Senator Elizabeth Warren, Pete Buttigieg, and Senator Amy Klobuchar grouped at the top. What I will be looking for? First, is the showdown between Sanders and Warren to be the candidate of the progressive wing of the party. All polling appears to indicate that Sanders has gained momentum and is well ahead of Warren. If he handily defeats her it is hard to see where her campaign goes from there. Second is a test for Biden to see if he is indeed on his way to the nomination. While he doesn’t need to win he does needs a strong showing. Thirdly, do Buttigieg and Klobuchar have a chance to stay competitive in the race should Biden falter. Both have a lot on the line and a high finish would energize their campaign as the candidates move on to New Hampshire. State of the Union In all likelihood by Tuesday night President Donald Trump will go before a joint session of Congress cleared of the impeachment indictment. The question is: Will he gloat or try to be presidential and talk of his accomplishment, lay out some issues for the coming year and address the nation on the coronavirus. There is apparently a push in the White House by his aides try to get the President to talk about what he has done, suggest more tax cuts and lower prescription drug prices, and have some calming words on the coronavirus outbreak. It seems like “Mission Impossible” to stop the President from some gratuitous comments when he sees his Democratic prosecution team sitting in front of him. The coronavirus could be a defining moment for the President as it provides both the opportunity to be seen as the national leadership at a critical time, but it also runs the risk of showing the side of the President where he can seem incapable of empathy or able to articulate a complex issue. We’ll soon see. Figure: Top Trump Tweets Working closely with China and others on Coronavirus outbreak. Only 5 people in U.S., all in good recovery.— Donald J. Trump (@realDonaldTrump) January 30, 2020 BIGGEST TRADE DEAL EVER MADE, the USMCA, was signed yesterday and the Fake News Media barely mentioned it. They never thought it could be done. They have zero credibility!— Donald J. Trump (@realDonaldTrump) January 30, 2020

Stimulus, Government Spending, Judy Shelton for FRB

Stimulus, Unemployment and government spending Congress will be out of town next week to celebrate Thanksgiving and returning on November 30th. The US Government is looking at two big deadlines: the expiration of the Continuing Resolution (CR) that funds the government until December 11, and the end of extended unemployment insurance (UI) on December 31. There appears to be some discussions between the bipartisan Congressional leadership on how to deal with the two critical dates; and a growing view that the economy will need some action on coronavirus relief before year-end. In March, the massive CARES Act unemployment insurance was extended from 26 to 39 weeks, but this provision is set to expire on December 31 leaving 10 to 12 million unemployed without benefits. There is also bipartisan support to replenish the small business PPP loan program. Congress may add these provisions to the year-end government funding bill, and then deal with one more relief package with the new Congress and new President in the first two months of 2021. But a larger package could be added to the funding bill if President Trump fully engages. Last Saturday the President did Tweet in support of a bill saying: Needs Democrats support. Make it big and focused. Get it done!” If he can move past recount, fighting for a big relief bill could be part of his lasting legacy as vaccines get approved. Judy Shelton for FRB In a rare setback Republicans were unable to get a majority vote for the President’s controversial Federal Reserve Board nominee, Judy Shelton, a sometime supporter of the gold standard. With three Republicans publicly opposed, and two Republicans in COVID-19 quarantine, the vote was 48 Y and 49 N. A revote is unlikely as the Republicans will lose one vote on November 30 when Democrat Mark Kelly replaces appointed Arizona Senator Martha McSally and hence assure 51 N votes.

  • US Policy
Aug 2, 2019

Budget deal approved; US-China Trade Tensions Worsen with One Trump Tweet

Well, they did it. The House and Senate have finally given approval to the two-year budget and debt ceiling bill. It’s now in the President’s hands for his signature while the legislature is on holiday until Labor Day. The budget and debt deal removes the threat of a government default and allows the Treasury to resume normal debt financing operations. The budget agreement establishes spending ceilings but does not actually appropriate money to fund the government for the new fiscal year that begins October 1. That piece must be done with specific appropriations for each department of government. It is the failure to pass these appropriations that have caused the government shutdowns, and therefore there is still the risk of a shutdown in the fall. Gulp. However, with or without the drama of a shutdown threat, spending bills will pass and the government will be injecting the economy with increased defense and non-defense spending because of the raised debt ceiling. Net-net, this is a positive development for the economy. US-China trade negotiations in Beijing ended with no break-through this past week. Nothing too terrible about that though, right? There were no signs of serious tensions between either trade party and there were also plans for talks to resume in September. So much to the market’s surprise, on Thursday the President announced that he was placing a 10% tariff on an additional $300 billion of Chinese goods entering the American market. It is hard to imagine that the Chinese won’t be reacting with some retaliatory action in the next few days. With some promise of expanded food sales to China, and the possibility of the US granting limited new licenses to Huawei, these trade threats remain up in the air. The President appears to take these actions without a plan for the next step, hence everyone will wait to see how the talks between the two global economic superpowers’ progress. While the President is taking a tough stance with the Chinese on trade, he seems indifferent to the missile tests by the North Koreans, dismissing them as “short range”. These “short range” missiles may not be able to hit the US, but South Korea and Japan (US allies) are within North Korea’s missile range, and the implications for this threat seems to be acceptable. It is yet another demonstration of how the heightened risk in that area and shows the Trump Administration must weigh its options with both friends and foes alike. China, Iran & other foreign countries are looking at the Democrat Candidates and “drooling” over the small prospect that they could be dealing with them in the not too distant future. They would be able to rip off our beloved USA like never before. With President Trump, NO WAY!— Donald J. Trump (@realDonaldTrump) August 1, 2019 …during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%…— Donald J. Trump (@realDonaldTrump) August 1, 2019 What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world….— Donald J. Trump (@realDonaldTrump) July 31, 2019

Stalled Stimulus Talks and Presidential Transition

Stimulus President Trump has walked away from Congressional stimulus talks leaving the negotiations to Senate Majority Leader Mitch McConnell and Speaker of the House Nancy Pelosi. The two sides come to the table with sharply different views, but a great deal at stake if they fail to pass any bill. The Speaker is still talking about the $3T “Heroes Act” as the base bill, while the Senate Republicans are putting forward their $500B proposal. Without any agreement, millions of unemployed workers will lose unemployment benefits that were extended from 26 to 39 weeks under the CARES Act passed earlier this year. The CARES Act benefits expire on December 31. Speaker Pelosi walked away from the Trump Administration’s $1.8T offer before the election; but now it seems that size of a deal is unlikely. While there is still a possibility that Congress could fall under Democratic control if Democrats win both special elections in Georgia on January 5, it seems as though there is need for some bill now. Even if there is a Democratic sweep in Georgia, Biden won’t become President until January 20 leaving months of hardship for unemployed Americans. Election President Trump’s viewpoint was summed up today in an interview he gave today to the right leaning Washington Examiner when he cautioned, “never bet against me.” Trade adviser Peter Navarro told Fox Business that “the White House is working under the assumption that there will be a second Trump term.” But developments out in the field are moving against the President. In Arizona, final votes have been counted and the state has been declared for Biden. The Arizona Republican Party withdrew its suit alleging voter machine error due to the use of sharpies when no errors found. The President and some of his supporters continue to make charges of widespread corruption but haven’t submitted evidence to courts to back up the claims. Perhaps the President’s dilemma was best highlighted by a Trump Tweet today, “…wonderful job the Trump Administration did in making 2020 the most secure election ever. Actually, this is true, except for what the Democrats did. Rigged Election!”

Stimulus, Election, Election, Election

Stimulus When the Senate returns next week, the first order of business will be a stimulus package. In all the turbulence surrounding the election, this statement by Senate Leader Mitch McConnell was lost. A few weeks earlier he said stimulus would have to wait until next year, so this is a positive development. McConnell, the ultimate dealmaker, has not been at the table as the Speaker of the House Nancy Pelosi and Secretary of Treasury Steven Mnuchin talked. And having him at the table would go far in bringing a deal up for a vote. Needless to say, the Speaker needs to agree to the deal, and the President will need to be engaged to sign the bill. McConnell has supported enhanced unemployment insurance, individual stimulus checks, renewal and replenishment of the small business PPP program, and this week indicated that he would consider some money for state and local governments. As long as Speaker Pelosi doesn’t insist on $2T, a deal in the next few weeks is possible. Election, Election, Election President While former Vice President Joe Biden appears to be close to reaching the magic number of 270 Electoral Votes, there is clearly going to be weeks of litigation by Team Trump. The President has been clear of his viewpoint that the election was riddled with fraud; but now the burden will fall on his legal team to bring evidence of the illegal actions to the courts. As one commentator opined: it’s hard to go to court without a crime. The President appears confident the Supreme Court, that he has worked to remake, will hand down a decision favorable to him. Comparing 2020 to 2000 it is important to remember that in 2000 the Court intervened in a recount, and George W. Bush was always in the lead. Senate After all the races are decided, it appears that Republicans will have 50 seats, Democrats 48 seats, and the two Georgia seats to be decided in a January 5 runoff election. Democrats would have to win both seats to get to a 50/50 tie; but under any scenario the Senate will be closely divided. Democrats will have Senators from more moderate states such as AZ, CO, MT and WV, making consensus difficult. Putting together winning margins in such a closely divided Senate will be a challenge for either McConnell or Schumer.

  • US Policy
Jul 19, 2019

Drama on Fiscal Cliff; Congress Takes Aim at Libra

After a week of sharp partisanship focused on President Donald Trump’s harsh comments towards four left-leaning Democratic House representatives, the substantive focus remains the efforts of Congressional leaders and the Administration to find a resolution to the fiscal cliff that could be reached as early as the first week of September. The scheduled vacation departure of the House at the end of next week adds heightened drama to Washington in the coming days. The Treasury Department projects that under their most conservative estimates the US government would hit the debt ceiling, and default on payments, as early as September 9 or 10. Congressional Democrats led by Speaker Nancy Pelosi would like a two-year deal that raises spending ceilings for both defense and domestic spending as well as deal with the debt issue. While both sides report progress, the big uncertainty is whether or not the President will accept a deal negotiated by Treasury Secretary Steven Mnuchin. There are persistent rumors that the President’s chief of staff Mick Mulvaney, a deficit hawk, will convince Trump to walk away from a deal even if a temporary default is possible. Separately, Congressional representatives questioned Facebook’s (FB) David Marcus, head its digital currency project, a few days ago about the proposed non-fiat digital currency, Libra. Even for nonbelievers in crypto/blockchain, this brings up several pertinent policy topics. In particular, the two-day hearing highlighted privacy issues posed by FB—and Google (GOOGL): anti-trust concerns that have become part of the 2020 electoral rhetoric, and the question of what role social media companies should play, if any, in offering financial services. There were also notable distinctions made between permissioned currencies like Libra and open public crypto-currencies such as Bitcoin, primarily relating to the freedom to enter the network and centralization of governance and custody. Legislators’ questions were aggressive, occasionally hostile, and generally cynical towards FB’s efforts. This broad-based animosity is likely connected to the company's long and well-known history of regulatory and privacy related missteps. During the hearings, lawmakers routinely cited these previous privacy issues as evidence that neither they nor Facebook's users should trust it to ensure Libra will protect consumers and comply with the necessary regulations. It is difficult to assess how the Administration will react to cryptocurrencies and blockchain technology. President Trump is a wild card but he clearly has grown annoyed with the left lean he sees in California-based technology companies. If he believes there’s a pro-Trump political argument to be made by attacking cryptocurrencies such as Bitcoin or related projects like Libra, then there is a risk he could intervene. FB stocks fell ~1% over the course of the hearing, closing at $201.80 afterwards. Despite the legislator hostility the mild move isn’t surprising given that Libra’s providing additional revenue streams to the company is so far off in the future. Source: MarketWatch

  • US Policy
May 17, 2019

Trump's Trade Sucess- Outside China

While the focus of media and trade action in Washington, D.C., was on the escalating tensions between the Chinese government and President Donald Trump, the Administration was taking steps to find successes elsewhere. For example, the U.S. announced a postponement until at least November of its proposed tariffs on imported cars and car parts. This tariff would hit two of the US’s closest allies, Japan and Germany, and is opposed by those governments and by much of American industry. Though the China negotiations have been in the headlines, trade talks are also ongoing with both the European Union and Japan. The delay of the auto tariffs allows for these negotiations to proceed without the threat of a draconian US action. The other trade issue that saw some positive attention this past week was a meeting in Washington between the US Trade Representative and leaders in Congress to discuss revised NAFTA or, as it’s now known, USMCA, for United States, Mexico, Canada Agreement. The treaty needs Congressional approval before it can come into force, and with change in control of the House of Representatives to the Democrats from the Republicans, there have been comments from unions that labor can do better with the new leverage provided by Speaker Nancy Pelosi and House Democrats. Most observers acknowledge the revised treaty is better for the U.S. than existing NAFTA and the Administration appears willing to make accommodations on some of the assurances that Democrats and labor seek. Of course, what may really be determinative is whether or not the Democrats are willing to give Trump a victory here with the 2020 elections approaching. House Democrats passed their first major bill that included a bipartisan measure aimed at lowering generic drug pricing but combined it with Affordable Care Act (ACA) provisions. Without separating the two measures, no final healthcare bill will pass the Senate or be signed by the President. President Trump Unveils Immigration Reform Plan“America’s last major overhaul of our legal admissions policy was 54 YEARS ago. Think of that. So a major update . . . is long overdue."Posted by The White House on Thursday, May 16, 2019 China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!— Donald J. Trump (@realDonaldTrump) May 14, 2019

Lame Duck Stimulus and Election

Stimulus There is a growing consensus that a lame duck session, with the pressure of the election removed, may create the atmosphere for a coronavirus relief package.  However, with several election outcomes possible, it is not clear which election results would create the best legislative environment. Possibly the biggest unknown is the state of mind of a defeated President Trump.  Some in DC believe he would be focused on his legacy and may champion a broad bill to secure the success of the CARES Act to his record as President.  A lame duck stimulus is likely to include money for a mass inoculation program, and the President may want a program that ends the pandemic to be part of his legacy. A victorious President Trump will be anxious to get the economy moving, and a large stimulus would undoubtedly be central to economic recovery.  Speaker Pelosi has made clear that she wants to see a stimulus bill in the lame duck; and the post-election Congressional session may ease some of the pressure between the Speaker and the President.  There are two key dates: December 11 when the government funding bill must pass, and December 31 when over 13 million Americans lose their unemployment benefit without an extension by Congress.  Different scenarios depending on control of the White House and Senate; but resolution will hopefully be clear next week. Election With the 2016 results showing the polls to be so wrong, at this point I will make a few observations. 1.              Lack of clarity on who benefits from what looks like a record voter turnout, some estimate between 10 to 15 million voters more than 2016.  President Trump did a remarkable job getting his voters out to vote in 2016.  Are there new pro-Trump voters who didn’t vote in 2016 and are coming out this year? Or are young voters, women, and people of color more energized and voting Democratic? 2.              A lot has been written about shy Trump voters, but I am seeing shy Biden voters. The shy Biden voters are committed Republicans who will vote Republican down the ballot except for President.  While this may hurt the President, it could help save the Republican Senate majority. 3.              With huge majorities in California and New York, Biden will win the popular vote, so ignore the national polling in the closing days; but most of the polls in the battleground states are within the margin of error and too close to call. President Trump outperforms the polls, so close poll numbers should give Democrats reason for concern.

Clock Seems to Have Run Out on Pre-Election Stimulus Deal

While I have been an optimist about the chances for a pre-election agreement between Speaker of the House Nancy Pelosi and Secretary of the Treasury Steven Mnuchin, the clock seems to have run out. Last night the Speaker said that her fellow House Democrats don’t want to return to vote on a deal if the Senate won’t take the bill up; and Senate Majority Leader Mitch McConnell has said the Senate opposes a pre-election vote. I think that by invoking the position of the House Democratic Caucus, the Speaker is telegraphing the no bill message. Both sides will talk about a bill in the lame duck session of Congress; but that could be tough. If President Trump is defeated, he is unlikely to devote time to a deal. And a big deal requires his personal lobbying of Senate Republicans.  Defeated members usually show their dejection by not coming back to Congress for weeks. If Biden wins, there may be pressure from Democrats to just wait until there is a new President.  This is all bad news for the 23 million Americans who don’t have jobs, testing programs that need money, schools that are in need of funding to bring kids back; the list goes on and on. The debate was at least more civil: between a moderator who did her job, and the new mute mic policy helped a lot by eliminating the distraction of shouting over each other.  The President’s more Presidential behavior likely shored up support from some supporters who were turned off by his performance in the first debate. Biden’s strong statements on immigration, climate change, and racial divides likely appealed to his supporters and any lingering undecided voters.

Stimulus Deal Still Possible Before Election

This may sound crazy, but I think a stimulus deal is still possible before the election. Earlier this week, Speaker of the House Nancy Pelosi had a tough interview on CNN when Wolf Blitzer ended by asking the Speaker if she is letting perfect be the enemy of good in getting a deal. The Speaker is also hearing from some of her members who are back home campaigning that the policy of saying no to the President's $1.8T offer, while unemployment claims grow, is becoming harder to defend. If the Speaker's motives are basically related to the Presidential campaign, maybe it is late enough in the game to give the President a win. Plus, there is a major split among DC Republicans as Senate Leader McConnell has said the Senate will consider a $500B deal and that he doesn't support the bigger deal. A public fight between Republicans, two weeks before the election, may help the Democrats accept the President's deal. In my view, the President has no higher priority than signing a stimulus bill in a gala White House ceremony to help his campaign. This is in fact what Pelosi doesn't want to see; but a mud fight between the President and Senate Republicans might help minimize this concern. This may be a unique period for a deal that could disappear when the votes are counted. A defeated Donald Trump is unlikely to be in a mood to deal, and McConnell is unlikely to be energized to deal win or lose with his Senate majority. In the past few days, the President has chastised Secretary Mnuchin for not coming home with the bacon, and telling Senate Republicans to go big or go home. While McConnell has opposed the big bill, it is hard to imagine him saying no to the President on the eve of the election. Today, economic adviser Larry Kudlow said the White House would be able to line up the needed Republican votes to get a bill through the Senate. Bottom line on stimulus: It could happen as final act of crazy campaign. Next Thursday in the final debate moderated by NBC's Kristen Welker. The general consensus is that the President hurt his cause in the first debate with his yelling and interrupting. What debate persons will President Trump bring to next week's debate? Does he just talk to his base that loves his tough guy approach or try to broaden his appeal to the suburban women he pleaded like me at a rally this week.

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