04 Oct 2013 Watching and Hoping
Here we sit, once again in fiscal crisis as our leaders fail to lead by compromise. Both Democrats and Republicans risk potential political backlash if they fail to find a way forward before the government runs out of money and technically defaults on its debts.
As easy as it would be to dismiss this as just another political mess forced upon us by ideologues, the truth is much more complicated than talk on the street, and it threatens our national credibility and creditworthiness like rarely before.
The Democratic party with its majority of Senate and Presidency has largely protected its constituency from internal contention by remaining fiercely aligned with the President; united, unyielding, and uncompromising on any part of the Affordable Care Act, or ObamaCare, this time and on entitlement spending the last time.
Republicans, on the other hand are fractured into at least three groups with few signs of agreement on a way forward. There are the Tea Party hardliners on one side and the conciliators ready to retreat now and re-join the fight another day. In the middle are about 100 conservatives who agree in principal with many of the Tea Party members’ tenants, but not their tactics.
No grand bargain seems possible this time as Senator Mitch McConnell (who saved us from the fiscal cliff) is in a Kentucky fight for his political life against a strong Tea Party challenger. The race at home has kept him hamstrung from his usual masterful compromising efforts as he avoids being painted as caving to the left.
The Tea Party sees holding up continuing resolutions for government and ultimately the debt ceiling as the only leverage they have to garner national attention to decry the dangers of Obamacare to the economy. The legislation continues to poll negatively among the majority of Americans. Perhaps had Tea Party leaders maintained their focus on the nation’s spiraling entitlement spending, they might have maintained the support of the 100 or so Republicans in the middle who are now seeking an alternative course.
It is interesting that in this latest crisis, it’s not just the Republicans who are being blamed as the NO party. Democrats are increasingly being seen as inflexible, and in the unenviable position of being painted as aligned with an unpopular and potentially damaging law.
It is a hopeful sign to see some Democrats embarking from the comfort of their year’s long unified encampment to join the fight. But, in doing so, they risk the same internal strife Republicans now suffer. In truth they may well represent the only political way forward because it does not seem to be forthcoming from their leaders.
The White House announced that President Obama called off his trip to Asia next week so that he can focus on getting congressional Republicans to vote on a spending measure to reopen the government. Unfortunately their spin on it showed no cracks in their unchanging hard line, unilateral tone “The cancellation of this trip is another consequence of the House Republicans forcing a shutdown of the government.” The president said yesterday as he has all along “there will be no negotiations over this.” And Henry Reid’s calling the House Republicans “anarchists” pretty well describes the tone in the Senate. It’s comments like these that make it hard for Republicans to believe Democrats are sincere when they say they will negotiate on Obamacare when the government is funded and the debt ceiling is raised.
Speaker John Boehner has said he is not going to allow the government to default on its obligations even if it means relying on Democratic votes. According to the WSJ the speaker expressed optimism at the lunch yesterday that he might be able to combine government funding and debt ceiling to embark on broader budget negotiations with the White House and Senate Democrats.
Other senior Republicans in Congress are abandoning their efforts to derail the health-care law in hopes of getting a broader budget deal before the government runs out of money, which Treasury says will happen this month. (We are now living the reason the Federal Reserve did not begin the taper this month).
Also according to the Journal, some House Democrats are pressuring their leaders to take
additional steps to reopen the government. One group has endorsed repealing
the health-care law’s tax on medical devices, a long-held Republican priority, as a way out of the budget battle. The idea was quickly rejected by Democratic leaders but signaled lawmakers’ growing frustration with the stalemate.
The first economic reporting casualty of the government shutdown is the Employment Situation. It likely would have shown little change in the nation’s stagnant job growth.
Regional Fed reports from Chicago and Dallas showed strong manufacturing gains in their respective regions. The PMI Manufacturing survey showed that September held steady and the ISM manufacturing index showed acceleration during the month.
Motor vehicle sales, which have been an area of strength in the economy fell sharply in September by 5.1%, following a 1.8% rise the month before. September’s 15.3 million annualized sales pace is up 3.4% on a year ago basis.
Some 800,000 government workers are idled. If the government shutdown continues for days to come, it will almost certainly begin impacting confidence, both at the consumer and management levels. Most economists agree that a short shut-down will have limited impact, but all bets are off if it continues indefinitely. The looming threat of a US credit default would certainly have global capital markets impact.
Odds are and the buzz indicates the Congress will avoid the worst case scenario. Today’s markets reveal that optimism partially for a deal and partially because investors are certain that the Fed will not taper until there is one. Once again, our economy has been hijacked by our political leaders and all we can do is watch and pray.