The markets have spoken and they are ambivalent: fine, you want to shut the government down, see if we care.
Nomura’s Jens Nordvig finds that stocks are up a bit, emerging market currencies doing well and bond yields slightly higher. However, there was movement on Tuesday that suggested the first nervous rearranging of assumptions around a US default.
In the absence of an agreement to raise the debt ceiling October 17 is the estimate for when emergency measures to fund the government are exhausted. Read more
Just a bit of Friday afternoon tomfoolery before we get back to our day job.
This has made the rounds already (HT Joe at Clusterstock and see also the WSJ’s Washington Wire, for instance), but we couldn’t resist mentioning it. Read more
American politicians on Thursday reached a tentative deal to fund an array of government agencies through September 30 and avert shutting down many of Washington’s operations starting this weekend, reports Reuters. Democratic Senator Daniel Inouye, one of the chief negotiators on the massive spending bill, told reporters the deal had been struck and the full Senate could vote on the measure as early as Friday. The House of Representatives is expected to vote on Friday, a Republican aide said. Current funding for agencies ranging from the Defense Department and Homeland Security to the Environmental Protection Agency expires at midnight on Friday. Meanwhile, work on a separate but equally important deal to extend a payroll tax cut and long-term unemployment benefits continued in Congress. Bloomberg says Senate Majority Leader Harry Reid told reporters the Democrats are considering a two-month extension of an expiring payroll tax as well as unemployment benefits if they are unable to strike a deal on a longer-term plan with Republicans.
The US congressional committee responsible for striking a deficit reduction deal ended its work without an agreement on Monday, delaying any solution to America’s debt problems and setting the stage for a sharp clash over budgetary policy ahead of the 2012 elections, the FT reports. The announcement by Representative Jeb Hensarling and Senator Patty Murray, the Republican and Democratic co-chairs of the panel, came just after the close of trading on US financial markets on Monday, prompting a wave of disappointed reactions from across the political spectrum and business. The failure of the committee also stoked fresh concerns that political gridlock could diminish the prospects for passage of economic stimulus measures to prop up the world’s largest economy in 2012, and threaten a partial government shutdown as early as next month. Mr Hensarling and Ms Murray sought to strike a conciliatory note in their joint statement. “Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve,” they said.
Budget talks between the White House and both parties in Congress enter an intense phase this week, with all sides expecting them to go beyond the initial early July deadline set for resolution, the FT reports. Global financial markets are nervously watching the talks, which are being chaired by Joe Biden, the vice-president, to lift the US borrowing limit of $14,300bn before the ceiling is reached on August 2. The Treasury department has warned that in the absence of a deal to lift the debt ceiling, the US could default on its debt, damaging irreparably the creditworthiness of the world’s reserve currency and potentially plunging a sputtering economic recovery into a new recession. The White House does not want the negotiations to continue until the last minute before the August deadline, because it fears such brinkmanship could have a similarly damaging impact on confidence even without a default.
Budget talks between the White House and both parties in Congress enter an intense phase this week, amid broad predictions they will extend beyond the initial early July deadline set for resolution, reports the FT. Global financial markets are nervously watching the talks, being chaired by US vice president Joe Biden, to lift the US borrowing limit of $14,300bn before the ceiling is reached on Aug 2. The Treasury department has warned that in the absence of a deal to lift the ceiling, the US could default on its debt, damaging irreparably the creditworthiness of the world’s reserve currency and potentially plunging a fragile economic recovery into a new recession. Even if there is a last-minute resolution before the Aug 2 deadline, the White House fears such brinkmanship could have a similarly damaging impact on confidence.
Republican lawmakers have questioned the Treasury’s forecast that August 2 marks the absolute deadline to reach a deal on the US debt ceiling, adding a fresh twist to negotiations on a debt vote, the WSJ reports. Freshmen representatives are particularly sceptical of the Treasury’s calculations, leading Congressional leaders to worry that pressure for a deal is about to slip away. Treasury issuance is already within a whisker of breaching the $14 trillion ceiling with this week’s $72bn of debt settling next Monday, the FT reports. Thursday’s $16bn auction of 30-year bonds was surprisingly poorly received by investors, dealers said.
By David Gordon, Sean West and Helen Fessenden of Eurasia Group. The views expressed are strictly their own.
With all eyes on the Gang of Six, naïve hopes of a deficit deal are blossoming in Washington. The problem is that that likely deals are unlikely to be meaningful. Read more
Moving at a pace reminiscent of potentially visitor-less animals at the National Zoo, US lawmakers are still negotiating the size and shape of a budget deal before the current continuing resolution runs out at midnight on Friday:
POLITICO: President Obama is calling House Speaker John Boehner and Senate Majority Leader Harry Reid back to the White House to negotiate on the budget at 1 p.m. Just before the announcement from the White House, Reid said on the Senate floor that “the numbers are basically there” but that “the only thing holding up an agreement is ideology.” He said he was not nearly as optimistic about reaching a deal as he was last night. Read more
President Barack Obama said late on Wednesday that key outstanding issues in the US budget talks had been clarified though there was still no agreement with congressional leaders to avert a looming government shutdown, the FT reports. Mr Obama, making brief remarks following the second summit in as many days with top lawmakers, said negotiations would continue through the night, and there was no reason a deal could not be reached before Friday’s deadline. The White House meeting with John Boehner, Republican speaker of the House of Representatives, and Harry Reid, Senate majority leader, came at the end of a day which saw the US finalise preparations to stand down nearly 1m workers and suspend services ranging from processing tax returns to national parks. The brinkmanship over the budget is unnerving both parties, most of all the Republicans, who took the political blame last time the government shutdown, in the mid-1990s.
Across the tape a little while ago, from Reuters:
NO BUDGET AGREEMENT REACHED AT WHITE HOUSE MEETING, REPUBLICAN HOUSE SPEAKER JOHN BOEHNER’S OFFICE SAYS Read more
The Republican majority in the US House of Representatives on Tuesday passed a temporary budget measure that aims to cut $4bn from the US deficit over two weeks, extending a Friday deadline to March 18 for Congress to agree a budget for the rest of the year, reports the FT. The move averted the threat of an immediate budget shutdown but the new Republican speaker of the House, John Boehner, must now negotiate with Democrats over a budget deal for the 2011 fiscal year. Also on Tuesday, reports the WSJ, Fed chairman Ben Bernanke warned the Senate banking committee that Congress could create economic “chaos” if lawmakers moved to raise the short-term debt limit to fund the federal government. Bloomberg adds that the Senate’s top Democrat, majority leader Harry Reid, said his chamber would vote on Wednesday to send the stopgap bill to President Barak Obama.
Congress continues to argue over a continuing resolution to fund non-essential parts of the US federal government past March 4.
As silly season drags on we’re still unsure whether a deal will be struck. Senate Democrats are said to be releasing details of some spending cuts Friday afternoon, which suggests movement — but it’s hard to untangle genuine compromise efforts from political posturing. Read more
The tense budget standoff in Washington could open the door to a compromise between Republicans in the Senate and the White House that would allow both parties to avert a potentially disastrous shutdown of the government, reports the FT. Such a deal, which would likely entail some of the spending cuts proposed by Republicans in the House of Representatives, could represent a win for Barack Obama, president, and senior Republicans in the Congress, who are more wary of the political ramifications of a shutdown than their Tea Party-backed colleagues. The commonly held wisdom in Washington has been that Republicans have more to fear from a shutdown than their Democratic colleagues.
A bipartisan group of senators has outlined proposals to enforce spending cuts and new taxes if Congress failed to meet specified budgetary targets, reports the WSJ. The plan would place separate caps on programs tied to security and on other spending programs. Targets in the legislation are inspired by a deficit commission recommendation last year that spending on discretionary items should be cut by $1.7 trillion by 2020. Failure to reform the tax code within two years of the draft bill’s passage would also lead to a crackdown on all tax deductions. However, Social Security would remain free of fixed targets attached to all other programs.
The White House’s FY2012 budget is out:
This is, of course, just a proposal — it’s now up to Congress to amend, appropriate and approve. That’s the theory, anyway; we’re still waiting for that FY2011 budget and the next extension for a continuing resolution to, um, fund the government runs out on March 4. Read more
Republican commissioners on the US Financial Crisis Inquiry Commission have refused to endorse the commissions’ report, which will on Thursday blame Wall Street excess for much of the 2008 financial turmoil, reports the FT. The 576-page report highlights lax risk management, distortive bonuses, predatory lending and insufficient regulation of Wall Street, say people who have read the final document. The four Republican commissioners on the Congress-appointed 10-member panel have criticised the report’s conclusions and the way the panel was run. Douglas Holtz-Eakin, a Republican commissioner, said the absence of a bipartisan consensus was “a great failure”. Either way, says the NYT, the report will “probably reignite debate” over Wall Street’s outsize influence.
Tonight is the State of the Union — a chance for the US to reflect on its past, look to the future, and play drinking games.
If you’re interested in some pre-game reading, then we recommend checking out the following: Read more
The Securities and Exchange Commission’s inspector general has launched an investigation into the agency’s estimated $500m in new office leases in Washington to determine if the expenses are justified, a person familiar with the matter has told the FT. The probe comes as the SEC faces the possibility of Congress freezing or reducing its budget. The SEC leased the office space last year and said it needed to provide room for 2,335 new recruits that would be hired if Congress increased the budget. The SEC estimates it needs from 150 to 300 square feet per worker. That would imply it was looking to add space in Washington for 3,600 to 7,300 employees – or at least 300,000 square feet more than needed for its projected recruitment.
Democrats in the House of Representatives delivered a rebuke to White House efforts to build support for the deal extending Bush-era tax cuts, agreeing not to put the measure up for a vote unless it was modified, the FT reports. The decision by House Democrats, angered that the terms of the administration’s deal with Republican leaders includes the extension of tax cuts for wealthy Americans and generous provisions on the taxation of estates, reverses some of the momentum in favour of the deal on Capitol Hill. The Senate was on Thursday poised to move ahead with a debate on the measures, and then its first vote – possibly on Saturday – after prominent Democrats, including Kent Conrad, chairman of the budget committee, and John Kerry, chairman of the foreign relations committee, came out in support of the deal. Meanwhile, Andrew Cuomo, the Democratic governor-elect of New York state, and Martin O’Malley, Democratic governor of Maryland, also joined the party officials backing the White House deal. But Harry Reid, Senate majority leader, has indicated that he wants to make some changes.
US companies from Goldman Sachs to Wellpoint may be able to weaken or block what they see as President Barack Obama’s anti-business policies on health care, the environment, taxes and financial reform, following Tuesday’s gains by Republicans in midterm elections, reports Bloomberg. Republicans will use their new majority in the House of Representatives to try to end funding for parts of Obama’s health care bill as well as curb regulations and government spending, said Jay Timmons of the National Association of Manufacturers. In particular, adds the news agency in a separate report, Republicans will try to rein in financial regulators and press for a smaller federal role in the mortgage market. Bloomberg adds that defence contractors such as Lockheed Martin and Northrop Grumman could receive a fillip if House Republicans decide to channel more funds into defence spending.
Beijing on Thursday said the bill passed by the US House of Representatives aimed at punishing China for allegedly undervaluing its renminbi violates global trading rules and could damage bilateral relations, reports the FT. The House voted 348-79 on Wednesday to approve the bill, which would allow the US to use estimates of currency undervaluation to calculate countervailing duties on imports from China and other countries. A Chinese commerce ministry spokesman said China’s trade surplus with the US was not due to its currency, while other officials warned there would be repercussions if the measure was approved. China RealTime rounds up economists’ reactions.
Tim Geithner, US Treasury secretary, on Thursday urged Congress to increase pressure on China to force it to let its currency rise and said the Obama administration was examining ways to encourage Beijing to act, the FT reports. But speaking before the Senate banking committee on Thursday, Geithner stopped short of promising the aggressive legal or administrative measures that US lawmakers are demanding. Beijing meanwhile hit back at criticism of its currency policy, saying America’s problems were not of China’s making. RealTime Economics says that in his testimony, Geithner may have revealed why the administration has been so reluctant to get tough on China: “he doesn’t want to burn bridges for future business opportunities”.
US lawmakers on Wednesday threatened legislation against Chinese currency intervention as Washington filed two new trade cases against Beijing at the World Trade Organisation, the FT reports. The moves were aimed at what the US has called distortionary and illicit measures by Beijing to favour its own companies. A congressional hearing on Wednesday considered proposals to allow the US to treat Chinese currency undervaluation as an illegal export subsidy when imposing emergency tariffs. Bloomberg reports that US Treasury secretary Tim Geithner said the US is considering ways to urge China to let its currency appreciate more quickly.
President Barack Obama is stepping up his campaign to regain the political initiative on the economy, preparing to announce on Wednesday a plan allowing companies to write off all capital investments until the end of next year, the FT reports. The proposal, the latest in a string of ideas the president is unveiling this week, is aimed at showing voters before the November 2 Congressional elections that his administration is taking decisive action to repair the ailing economy. But it is unlikely that the measures, which also include the extension of a research and development tax credit and $50bn of infrastructure spending, will be passed by Congress before the elections, if at all. Democrats stand to lose control of the House of Representatives and perhaps the Senate as well, as voters express disappointment with the Obama administration’s failure to bring down the unemployment rate and boost growth.
Take pity on Republican Congressman Mario Diaz-Balart.
The man in charge of Florida’s 25th congressional district has just been singled out by Deutsche Bank as the US Congressional representative with the hardest-hit constituency in terms of mortgage arrears. Diaz-Balart, it seems, is running a district where a third of mortgages are seriously delinquent. Read more
The US House of Representatives on Wednesday approved the financial-overhaul bill, moving closer to the broadest reform of Wall Street regulation since the Great Depression, reports Bloomberg. The House voted 237-192 in favor of the bill. It must also be approved by the Senate, which delayed further action until after the week-long July 4 recess, before going to President Barack Obama to be signed into law.
Irate members of Congress accused Tony Hayward of “stonewalling” on Thursday as BP’s embattled chief executive came under sustained attack during a prolonged hearing on Capitol Hill into the Gulf of Mexico oil well disaster, reports the FT. Mr Hayward, appearing before a congressional committee for the first time since the April 20 blow-out, tried to assuage public fury over the spill, saying he was “deeply sorry” for it and was “devastated” by the loss of 11 lives in the explosion.