The End Of Special Fiscal Stimulus

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Barkley Rosser
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 A week ago a two week long negotiation between Dem Congresspeople, Nancy Pelosi from the House and Chuck Schumer from the Senate and Treasury Secretary Steve Mnuchin, who cut deals with Pelosi and Schumer three times earlier this year, but now Trump's Chief of Staff, former Freedom Caucus leader in the House, Mark Meadows, notorious for only destroying deals and never making any. And in this case all the reporting is that a week ago he "blew up" the negotiations, taking a hard line on orders from Trump. So, where are we at now?

For starters yesterday the Senate adjourned until after Labor Day. So, the market expectations that a deal will be cut soon are a joke. There will be no deal anytime soon, and maybe never. Many things have run out, whose impact has not fully arrived: end of extra unemployment, end of PPP assistance for small businesses, end of no evictions, and several other things.

Yes, there have been vague noises in the past week about restarting the negotiations, but they went nowhere.  Dems indicated that they were willing to compromise on many issues.  To pick a big symbolic one has to do with the total spending level.  Going into this the Dems were pushing $3+ trillion and the GOP was pushing $1 trillion. Gosh, looks like $ 2 trillion would be an obvious compromise, and the Dems have publicly indicated they would be willing to go to that, but, no, Meadows held the hard line, and, along with some other issues, such as a roughly $800 billion difference over state and local aid, which is clearly the largest chunk of this stalemate. As it is, Meadows left town and the Senate has gone on leave until after Labor Day.  No deal.

What is unclear if Trump and his incompetent advisers actually think that his "executive actions" put out 6 days ago will save the US economy or not.  I recently posted on that, but it needs some updating, but the bottom line is that, no, what he did last weekend will not stimulate the economy and even overcome all the disappearing fiscal stimulus from the deals earlier in the year, especially the increased unemployment benefits and the PPP aid for small businesses, not to mention evictions, the only matter out of 4 actions last weekend was an actual Executive Order, but it was an order that HUD "consider" changing rules so people will not be evicted, and, big surprise, HUD has done nothing.  I am not going to waste time by going through the details of his UI and Social Security proposals because they seem to have fallen into a hole and are going nowhere. The only item actually happening is that in contrast to my last post on that is that indeed interest payments on student debts will be put off until the end of the year, which is fine, but a very small matter.

So, the latest evidence is that indeed the former V recovery is indeed slowing down, with retail sales up only by 1.2% in July.  Many are now suggesting we may see an actual GDP decline into a "wiggly W" pattern, although  I am not going to pass on that, but that V is definitely flattening. 

But it seems that maybe Trump and Meadows foresaw that maybe their actions would not improve the economy. So their plan in that case is to blame the Dems for the bad economy outcome: hey! they did not accept our offer!  They seem to have forgotten, if they ever knew it, that the president is held responsible when elections arrive for the state of the economy, and certainly for other big events such as the pandemic.  Trying to blame Dems in Congress for the economy or governors, the media, the Chinese, the WHO, the scientists, or anybody else other than the administration for what is going on with the pandemic, especially given that all other high income nations have done better than the US, suggests that Trump and Meadows are completely delusional.  Hopefully the US electorate will not be so deluded.

Barkley Rosser