- US Policy
The quiet discussions between the U.S. Congress and the White House about the upcoming fiscal cliff ended last week with no deal and no date to meet again, a not particularly auspicious beginning. Congressional leaders, senior White House staff and the Treasury Secretary met to talk about a budget deal to forestall a government shutdown on October 1; remove budget caps that would mandate $120 billion in budget cuts, and increase the debt ceiling. Congress wants a two year agreement with the White House, to remove the threat of a government fiscal crisis past the 2020 elections. Apparently, the Administration wants a one-year deal. And while pushing for more money for defense, it appears willing to keep existing spending levels with a “continuing resolution” rather than a broad spending agreement. Unfortunately, this strategy is not the best one for markets; it would—if agreed to—at least delay a government crisis. Investors should focus on the G-20 meeting in Japan between Presidents Donald Trump and Xi Jinping. The American president reported that the two talked this past week and that it was a good conversation that led to the agreement to meet. President Trump also reported that the two directed staff to meet this week, though there haven’t been any reports of progress at the staff level. With little in the way of pre-meeting progress, I find it hard to foresee a major breakthrough any time soon, but both sides appear willing to repeat the progress they made last year when they met at the G-20 in Buenos Aires and agreed to a trade war standstill. This would delay the tariffs President Trump is considering on $300 billion of Chinese imports into the US. Investors can only hope for some advancement in the talks.
- US Policy
Congress-White House Fiscal Cliff Discussions Underway
Under the radar, the U.S. Congress and the White House have begun quiet discussions on trying to avoid the fiscal cliff that lies down the road this fall for the federal government. The Feds are facing a triple monetary threat: a need to raise the government’s debt ceiling; pass a budget by October 1, and deal with the mandatory $50 billion and $70 billion in cuts for domestic and defense, respectively, required under the Budget Control Act of 2011 (BCA). The White House would like to increase its leverage for spending cuts by removing the threat of a government default and increase the debt ceiling in a separate bill. However, House Speaker Nancy Pelosi (D) Thursday announced she would have none of that plan, that there will be no debt ceiling increase without a budget deal that increases domestic spending. Senate Leader Mitch McConnell (R) shepherded several debt ceiling and budget deals through the Congress while negotiating with the Obama White House, and he favors a bipartisan deal that increases the BCA caps and suspends the debt ceiling. Under his program, both the BCA caps that lead to sequestered cuts if not raised and the national debt would be included in a two-year plan taking the issues off the table past the 2020 election. McConnell knows a budget crisis never ends well for the party in control and his top priority is preserving the Republican Senate majority in 2020 that includes his seat in Kentucky. On the 2020 Presidential front the Democrats have announced that 20 candidates qualified for the first primary debates June 26 and 27, and that three announced candidates didn’t qualify.