Can Kicking Time In The Imperial City

You have to hand it to the Donald. He speaks his mind. This week he dropped an unwelcome stink bomb on Capitol Hill during his Phoenix rant Tuesday night. If Mexico won’t pay for my wall, he seemed to say, than Congress will—-even if I have to shutdown the Imperial City to extract the first $1.6 billion of seed money:

“We’re going to get our wall,” Mr. Trump said at a rally in Phoenix. “If we have to close down our government, we’re building that wall.”

The Mexican Wall waste an estimated $20 billion needed to complete, and would place ICE agents at the border handing out guest worker papers to anyone who comes across looking for a job. That would mean more domestic production and tax revenue, and a tad less addition to the crushing national debt that Washington is handing generations to come.

It didn’t take long for Washington’s permanent political class to say “no dice” to the shutdown idea. It seems Speaker Paul Ryan has been domiciled in the Imperial City since he was 21 years old and makes no bones about his priorities.

“I don’t think anyone’s interested in having a shutdown,” House Speaker Paul Ryan said at a stop at an Intel Corp. facility in Oregon on Wednesday…….

Mr.. Ryan said he expected lawmakers would need to pass a short-term spending bill in September to give them more time to work out a broader budget agreement later this year.

What has the GOP Congress been doing the last nine months that it hasn’t enacted into law a single one of the 12 annual appropriations bills? The same bills that would provide upwards of $1.1 trillion to run the Pentagon and the domestic agencies.

The answer is simple. They’ve been deliberately burning up the clock in order to force spending measures through as emergency continuing resolutions (CRs) or 11th hour compromises to keep the government open. This has been going on for years.  It is the very reason Washington now stands on the edge of raising the national debt ceiling above $20 trillion.

So we’ve officially enter the kick-the-can season. You can count on Paul Ryan to spin and misdirect in order to obfuscate what’s actually going on. The House Speaker is about to capitulate again to the nation’s fiscal doomsday machine. Expect clever maneuvers designed to hide the truth through yet another election cycle.

That’s exactly what Ryan did back during the 2013 shutdown crisiswhen he negotiated a sell-out deal with ultra-liberal Dem Senator Murray to keep the government open through the 2014 election.

In that case, he agreed with Sen. Murray to bust the sequesters caps by $64 billion over FY2014-2015.

Per the typical routine, Ryan got $32 billionon top of the $1.01 trillion already slated to be wasted by the Pentagon during that two year period, while Murray got $32 billion more (a 3.5% increase ) to sprinkle across a myriad of domestic social programs. At the end, all parties were praised by the beltway lobbies.

Likewise, Ryan’s first act as Speaker after succeeding John Boehner following the shutdown crisis of 2015was to pass the Boehner-Obama deal that suspended the national debt limit and empowered the Obama Treasury to borrow at will.

That it did!

As of October 1, 2015, the net debt of the US was $17.66 trillion. After the Ryan-enacted debt limit suspension expired on March 15, 2017, the net debt soared to $19.82 trillion.

Paul Ryan and Continuing Resolutions in the Imperial City

This time, Speaker Ryan is going to need to deploy his best tricks to avoid a giant fiscal mishap. That’s because the White House is occupied by the Great Disrupter. By the looks of Trump’s Twitter account he’s still capable of unleashing the kind of impulsive curve ball that the Imperial City simply cannot anticipate.

Having already complicated the appropriations and CR, the Donald piled on more by suggesting GOP leadership had already screwed up raising the debt ceiling during the few days available when Congress returns from August recess.

Opined the Donald,

I requested that Mitch M & Paul R tie the Debt Ceiling legislation into the popular V.A. Bill (which just passed) for easy approval. They……didn’t do it so now we have a big deal with Dems holding them up (as usual) on Debt Ceiling approval. Could have been so easy—–now a mess!

Here’s the thing. Trump is 70 years old and has spent just eight months in the Imperial City, or about 1.0%of his life. Ryan and McConnell are collectively 122years old and have been playing their trades in the Great Swamp for 82collective years, or two-thirdsof their lives.

The rank and file Republicans on Capitol Hill desperately fear being blamed for a shutdown. They have bound themselves as hostage to both the Fiscal Doomsday machine and the main street media’s need to safeguard Uncle Sam’s credit at all costs.

CNN talking boxes would have a field day excoriating the GOP for shutting down the government. Now that the GOP allegedly controls the White House and both chambers of Congress the situation is even more muddled. Thus, as one member of the Freedom Caucus opined to the Wall Street Journal,

“A government shutdown hurts Republicans—it’s the last thing I want,” said Rep. Trent Franks (R., Ariz.), a member of the House Freedom Caucus who was at Mr. Trump’s rally Tuesday. “It is a political liability of profound significance to us.”

Many GOP lawmakers worry a shutdown or a failure to raise the government’s borrowing limit—another deadline they are facing this fall—could harm their chances of retaining the House majority in next year’s midterm elections. Treasury officials have said Congress must raise the government’s borrowing limit at some point near the end of September.

The real aim is herding legislators into the Christmas holiday. In that circumstance, as has been proven over and over in the past, not even the most resolute hawks have been able to stand by their convictions. The mantra always becomes “on to next year for real reform!”

Goldman Sachs, Debt Ceilings and Can Kicking

But perhaps this time it will be even worse. The Goldman Sachs Regency in the White House would readily sign up for the skinny bill and three-month punt. They are flat-out desperate to keep the casino at bay and the stock average from plunging.

Assuming that the Donald doesn’t blow-up the proceedings on a skinny bill, the maneuvering for a December deadline would be where the rubber could finally meet the road. That’s because there would need to be at least a $1.5 trillion debtceiling increase just to make it to December 2018 under current tax and spending policy.

The Treasury will need to borrow $500 billionor more to replenish its depleted cash balances and to pay back the funds which allowed it to pay the bills since March 15. The Treasury will be running upwards of an $800 billionannualized cash deficit between now and December 2018.

Even with a $1.5 trillion interim debt ceiling increase, there still wouldn’t be room for a single dime of tax cuts on top of the red ink that is already baked in. When it comes to Wall Street’s hope that Congress will pass a tax bill before the end of the year, or the next election – fuggedaboutit!

There’s no way to get a big enough debt ceiling increase to accommodate the current structural deficits and the Trump Stimulus, without major help from the Democrats.

The can kicking season is once again here, and this one will be like no other.

Regards,
David Stockman
for The Daily Reckoning