The Government Could Shut Down Tonight
Remember the “tea party” revolt in 2009–2010 against government bailouts and government spending? Remember the “fiscal cliff” drama of Dec. 31, 2012, when Congress raised taxes and cut spending to avoid a debt default and government shutdown? Remember the actual government shutdown in October 2013 as Republicans held the line against more government spending?
Well, congratulations if you do, because everyone else seems to have forgotten.
The days of caring about debt and deficits are over. Republicans passed the Trump tax cuts that will increase the deficit by $1.5 trillion on a conservative estimate, and probably much more. Then Republicans and Democrats “compromised” on eliminating caps on defense spending and domestic spending by agreeing to more of both.
That repeal of the so-called “sequester” will add over $300 billion to the deficit over the next two years.
Then there’s a tsunami of student loan debts in default that the Treasury has guaranteed and will have to pay off. Finally, the higher interest rates from this debt will add $210 billion to the annual deficit for every 1% increase in average federal debt funding costs.
Today we are looking at $1 trillion-plus deficits as far as the eye can see. That’s extraordinary enough. What is more extraordinary is that no one cares! Democrats, Republicans, the White House and everyday Americans are all united in totally ignoring the fact that America is going broke.
This euphoric mood in response to more spending won’t last. The growth is not there to pay for the tax cuts, and the economy is not even growing fast enough to keep up with the growth in the debt. Credit rating agencies are preparing reviews that will likely lead to a downgrade in the U.S. credit rating and higher interest costs for the Treasury.
When the crisis of confidence in the dollar and related inflation arrive, there will be no particular party to blame. The entire system is turning a blind eye to debt, and the entire system will have to bear some part of the blame.
We have a highly dysfunctional political system, with plenty of blame to go around.
Which brings me to a looming government shutdown scheduled for midnight tonight if a budget deal cannot be worked out.
Each fiscal year (Oct. 1 through Sept. 30) the government must be funded either through individual appropriations bills for separate departments and agencies or through “omnibus” legislation that funds multiple agencies with one gigantic bill that very few members of Congress actually read.
Any failure to pass an appropriation bill or omnibus bill on time results in the affected agency or the entire government shutting down at least with respect to “nonessential” personnel.
If a deadline is going to be missed, the Congress can pass a “continuing resolution,” or CR that keeps the government open using the prior year’s spending levels until the new appropriation can be worked out.
Eventually the appropriations bills must be passed, which is why they are the one vehicle where some bipartisan cooperation is needed.
Currently, a December 7 continuing resolution has been extended by two weeks to today because of the death of former President George H.W. Bush and the subsequent congressional activities surrounding his funeral services.
We can expect either a decision on a funding agreement by midnight tonight, another continuing resolution, or a federal government shutdown.
President Trump has insisted that over $5 billion be apportioned to fund the border wall that he promised during his campaign. Last year Trump suffered a political defeat when he didn’t get his funding. This year he seems determined to get it.
The House has actually passed a spending bill that allocates $5.7 billion for the wall. But it has to pass the Senate in order to go ahead. Senate Minority Leader Chuck Schumer has insisted that it wouldn’t get through the Senate. But Trump insists he won’t sign the bill unless it includes funding for the wall, and he says he’s prepared to let the government shut down:
“If the Dems vote no, there will be a shutdown that will last for a very long time.”
This could come right down to the wire. It no deal is reached the government will (partially) shut down. You might not remember, but the government actually shut down for two days back in January. Before that, the last shutdown occurred in 2013, which lasted 16 days.
But despite pervasive political dysfunction in Washington DC, there is one important piece of legislation that I expect to achieve bipartisan support in the coming months. This legislation would be a one-trillion dollar infrastructure spending bill that would extend its spending to all fifty states.
Both parties agree that enormous improvements are needed in highways, bridges, airports, railroads and public amenities. Democrats like infrastructure spending because most of the jobs created are union jobs that offer relatively high pay and benefits.
Republicans like infrastructure spending because the suppliers include firms that provide steel, heavy equipment, cement, asphalt and the technology behind the operating systems.
Both parties like infrastructure spending because it’s popular with voters and results in tangible progress unlike the intangible benefit programs that voters can’t see.
The Democrats can support “jobs, jobs, jobs” while the White House can say they’re out to “Make America Great Again.”
It’s a win-win for the two parties and the voters.
Of course, a bill of this type will add one-trillion dollars to the deficit, but at least politicians could claim that the benefits to the economy in terms of wages, equipment sales, safer highways and airports and reduced travel times will outweigh the added deficits; the new infrastructure will produce added growth for the economy.
Best of all, the infrastructure spending would be “made in America.” These are not the kind of projects that can be outsourced to Mexico or China. The projects would use U.S. steel, U.S. equipment and U.S. workers. At a time when the U.S. political process is breaking down into acrimony and accusation, both parties might like a bill the benefits the country and makes the politicians look reasonable.
Funding the Department of Transportation, which oversees infrastructure spending, could be the catalyst for companies that provide materials for structural improvements to the nation’s highways and bridges.
This is a great opportunity for investors who take advantage of the infrastructure spending spree that could begin soon.
for TheDaily Reckoning