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Debt Ceiling

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  • 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

free content
  • 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
Jul 12, 2019

Debt Ceiling Deadline Looms; UK-Iran Standoff in Gulf

President Donald Trump continues to push the envelope on partisanship with the reported roundup of illegal immigrants as early as this weekend. As this takes place, tensions are growing over the need to increase the debt ceiling, which if not accomplished, could pose serious problems for federal government finances this fall. While the Treasury Department has yet to notify Congress of a “drop dead” date for the ceiling raise, there are reports lower federal inflows may be accelerating the date earlier than mid-October. In Congress, Federal Reserve Chairman Jerome Powell said it would be “unthinkable” for the US government to default on a payment because of the failure of Congress to increase the debt ceiling (see page 6). Meanwhile, House of Representatives speaker Nancy Pelosi has been dealing with internecine fighting within the Democratic caucus and will need to use all her political skills to get the votes together to increase the debt ceiling, always a tough vote. The Democrats are likely to need assurances from the Senate Republicans and President Trump that the spending caps called for under the sequester provisions of the Budget Control Act will be lifted for domestic spending and not just defense spending. Without such a deal it will be a real challenge for the speaker to round up the votes to secure passage of the debt ceiling. The House is scheduled to leave town for their August break on July 26 and not return until after Labor Day in September. Perhaps Congress and the White House could come up with a short-term increase, even days or weeks, but we could have a completely avoidable crisis on the horizon. Stay tuned. Separately, there are reports U.S. Treasury Secretary Steven Mnuchin has been suggesting to U.S. suppliers of Huawei Technologies that they seek licenses allowing them to resume sales to the Chinese firm (a Treasury spokeswoman denied the story). The US in May banned U.S. firms from selling parts to Huawei, which was required to receive government approval before acquiring technology from US firms. President Trump is looking for a trade deal with China (or near certainty of one) as the reelection season will soon kick off. Further easing of these restrictions on one of China’s most prized global companies would not be surprising. International relations must seem like the whack-a-mole game, sometimes. Just as the U.S. and China try to ratchet down trade tensions, potential conflict in the Middle East boils over. Last week, three Iranian vessels tried blocking the passage of a U.K.-flagged oil tanker on its way through the Persian Gulf. A British warship came to the rescue. US sanctions on Iran are hurting the country’s economy, and things likely will get worse if the there’s no diplomatic relief. Additional sanctions may be forthcoming as Iran has continued to breach prior commitments on uranium enrichment. The standoff continues. …. If Mexico produces (which I think they will). Biggest part of deal with Mexico has not yet been revealed! China is similar, except they devalue currency and subsidize companies to lessen effect of 25% Tariff. So far, little effect to consumer. Companies will relocate to U.S.— Donald J. Trump (@realDonaldTrump) June 11, 2019 …. companies to come to the USA and to get companies that have left us for other lands to COME BACK HOME. We stupidly lost 30% of our auto business to Mexico. If the Tariffs went on at the higher level, they would all come back, and fast. But very happy with the deal I made,…— Donald J. Trump (@realDonaldTrump) July 12, 2019 I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….— Donald J. Trump (@realDonaldTrump) July 12, 2019

  • US Policy
May 24, 2019

As Summer Begins, Debt Ceiling, Budget Issues Loom

In the coming weeks and months, the highest priority for Congress and the Trump Administration will be to find a resolution to the stalemate on the U.S. debt ceiling, which was hit last March. Congress and the Administration must break the impasse by raising the ceiling before about August or September, at which time the government is expected to run out of money. In addition to scaling that fiscal cliff, they must agree to a budget for the new fiscal year and avoid $120 billion in automatic spending cuts under the sequestration process. Without a budget deal, mandatory cuts will kick in. Unfortunately, at a meeting last week Congressional leaders and the White House, failed to agree to lift the spending caps for non-defense programs. Moreover, with a divided Congress, it’s highly unlikely that an agreement can be reached without raising the spending caps for both defense and non-defense programs. The general view from D.C. is that the preferred policy would be to lift the caps and suspend the debt ceiling for two years, which would presumably take 2020 election posturing out of the talks. In a much covered non-meeting, President Trump and Democratic leaders Nancy Pelosi and Chuck Schumer had a long planned follow up conclave on the infrastructure program tentatively agreed to previously, but when the Congressional leaders arrived at the White House the President refused to talk. He walked out of the meeting to hold a press conference insisting there would be no bipartisanship without the Democratic House ending all investigations of him. This confirms my skepticism of any significant infrastructure program when there is significant Republican opposition to new domestic spending. While the President’s performance was a stunt, there is little likelihood that any infrastructure program will be approved this year. China trade talks have so far gone nowhere, and US newly instituted restrictions against China’s Huawei only exacerbated the ongoing tensions, which has found expression in a choppy stock market. The President did utter some soothing remarks but attention continues to be focused on the expected meeting between Trump and China’s president Xi Jinping at the G-20 summit in Japan at the end of June. Congressional representatives leave until June 4 for their Memorial Day break. While Congress did manage to come to an agreement with the White House on a $19 billion disaster relief bill nothing else was agreed to. Democrats don’t want to fix the loopholes at the Border. They don’t want to do anything. Open Borders and crime!— Donald J. Trump (@realDonaldTrump) May 23, 2019 Congratulations to Prime Minister @NarendraModi and his BJP party on their BIG election victory! Great things are in store for the US-India partnership with the return of PM Modi at the helm. I look forward to continuing our important work together!— Donald J. Trump (@realDonaldTrump) May 23, 2019 …Mexico’s attitude is that people from other countries, including Mexico, should have the right to flow into the U.S. & that U.S. taxpayers should be responsible for the tremendous costs associated w/this illegal migration. Mexico is wrong and I will soon be giving a response!— Donald J. Trump (@realDonaldTrump) May 21, 2019

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