Right after I wrote my post saying I didn’t expect stimulus, news broke that suggests Pelosi and Mnuchin don’t see it either. So I’m noting that here. More evidence we’re headed towards a major Policy Failure (Econ speak for a shooting yourself in the foot). The markets have tanked in the two days since that news broke, although that might just be coincidence. I still think most investors and executives are blithely assuming “they will do a deal” based on the (obvious) benefit to re-election campaigns etc. That assumption stands on shakier ground every day closer to Election Day.
The news; Pelosi and Mnuchin have agreed to detach any stimulus deal from a “clean” continuing resolution to fund the government. If they thought a stimulus deal was in reach, they would have used the short-term spending bill to push it through. This strongly suggests they don’t expect to pass a stimulus soon (if ever).
Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have tentatively agreed to use a short-term spending bill to avoid a government shutdown at the end of September, according to Capitol Hill aides. The agreement on government funding comes even as the White House and top Democratic officials have been unable to reach a compromise on a new Covid relief package… Yet separating the issue of government funding from coronavirus relief talks removes at least one nightmare scenario from the political landscape two months before Election Day — a stalemate on more economic stimulus coupled with federal agencies shut down and vital services halted in the middle of a pandemic.
Per my prior post: Looking at the big picture, passing a stimulus package seems like an obvious, logical move. But the mechanics look impossible when you work from the bottom up. Remember that nothing happens without 51 out of 100 Senate votes AND Bernie Sanders agreeing to not filibuster. Or 60 Senate votes if Bernie does filibuster.
- A reported 15-20 Republican Senators weren’t willing to support McConnell’s $1 trillion trial balloon (that notably never got turned into a bill). The largest package McConnell can pass with all-Republican votes seems to be about $500b (as reported this week). The common thread seems to be Senators NOT up for re-election in 2020. They are looking at the 2008-2009 experience and fearing (rightly) that any vote for “stimulus” will become an albatross around their necks in the 2022 and 2024 Republican primary season. Or the 2024 presidential Campaign – here’s looking at you Ted Cruz.
- McConnell isn’t going to get 5-10 Democratic Senators to cross the aisle and vote for a $500b package nor, probably, a $1T package. The higher the price tag goes towards $2 trillion, the more he will need to depend on Democratic votes. I just don’t think McConnell would pass a bill with a Democratic majority (e.g. 26 Democrats and 25 Republicans). If you think McConnell would do that, I’ve got a lovely bridge in Brooklyn to sell you. Especially as McConnell is also up for re-election this year.
- Most reporting give Pelosi credit for “compromising down” from $3T to $2T. Pelosi’s has since stuck firm to that $2t+ number. But there is a lot less to that $1T cut than meets the eye. Last I saw specifics, her “come-down” from $3T was mostly spending the same amount (per month) for fewer months. “OK, I’m willing to cut the headline price tag by only funding the same total spend until the next Congress is seated (instead of funding it well into 2021).” Pelosi has also been (deliberately) vague about what her proposal actually entails.
So McConnell is sidelined because he can’t get a deal done. Trump’s usual approach is to wait for other people to bring him a deal (and then either take the credit or throw everyone under a bus depending on the polls). Pelosi is working very hard to look like she’s willing to compromise, but making no apparent effort to reach an actual compromise.
The equation above does not solve for a deal. It solves for a short ride off a tall cliff in a game of chicken gone bad. The Republican party are the guys with their jacket caught in the door, but we’re all likely to take a hit from it. (a classic “Rebel Without a Cause” clip below).
Pelosi’s motivation are, I think, particularly misunderstood. Pelosi’s political interests are better served by a bill NOT passing – threatening market optimism and exacerbating the current economic crisis. Going into November, a deepening crisis and a declining market likely help the Democrats politically. With the key caveat that she can pin most of the blame on the other party. That might be unequivocally bad for the nation, but it is good for her narrow, short-term political agenda.
The keystone (potentially false) assumption is that Pelosi will put the national interest over her political interests. There is no guarantee this happens. What would Mitch McConnell do if the tables were turned and Obama was President? Reading Pelosi’s actions so far, she seems to be playing this more for political gain than with an eye towards a resolution. In other words, hoisting Mitch by his own petard.
More on that tomorrow.