Predictably, market participants were inundated with stimulus headlines after the closing bell Tuesday, as a call between Nancy Pelosi and Steve Mnuchin wrapped up.
Tuesday was the ostensible “deadline” for The White House and Democrats to agree on the scaffolding of a deal. In remarks to Bloomberg Television, Pelosi said the point of the 48-hour stipulation she communicated over the weekend was to make it clear to Mnuchin that the process of taking words on paper and turning them into law is cumbersome, and if the ball isn’t rolling in earnest soon, there will be no chance of getting anything passed by election day.
She struck an upbeat tone, and that bolstered risk sentiment, even as Mitch McConnell and two GOP senators expressed considerable doubt about the odds of a bill with a price tag near $2 trillion making it through the Senate.
Read more: ‘We Should Have Done Something. But I’m Not Optimistic’
On Tuesday afternoon, Mark Meadows said Pelosi and Mnuchin made good progress on their call. The talks, he told CNBC, were productive enough to continue on Wednesday.
“I would think that those discussions hopefully would make progress again tomorrow and perhaps the following day,” Meadows said. By the time the weekend rolls around, we could have “some kind of agreement,” he added.
Naturally, Meadows placed the blame for the delay on Pelosi, calling her the “biggest hurdle.” Her offer remains in the range of $2.2 trillion to $2.4 trillion, Meadows remarked, noting that The White House is stuck at $1.88 trillion. “It’s been pretty much her way or the highway,” he complained.
Perhaps that’s because Donald Trump tipped his hand earlier this month by abruptly canceling the negotiations, only to reverse course just hours later, on the way to raising his offer and then calling for more money than “even Democrats” want to spend. All of that came on the heels of his brief hospital stay, and some attributed the president’s about-face to the side effects of the steroids he was taking at the time. Whatever the case, his behavior was the opposite of the kind of legendary dealmaking prowess he claims to possess and it effectively handed House Democrats all the leverage.
In any event, McConnell and the Senate are preparing to vote on a $500 billion bill tomorrow, something Chuck Schumer is not enamored with. The country needs “real, substantial virus relief,” he said on the Senate floor, as Democrats rejected what some called a cynical GOP attempt to authorize the release of unspent funds from the previous virus relief bill.
Pelosi, speaking to reporters after her call with Mnuchin, said she’s optimistic about a deal by the end of the week. Asked specifically if she sees an agreement by the weekend, the speaker said “I hope so. That’s the plan.”
“We’re certainly sympathetic to the collective apprehension in assuming there will be the needed support for a fresh round of stimulus to ultimately be delivered,” BMO”s rates team said Tuesday evening. “That said, if one cannot believe politicians in an election year; who can be trusted?”
Good question. I’m reminded of Johnny Caspar (Jon Polito) from the Coen brothers’ mob masterpiece Miller’s Crossing:
It’s gettin’ so a businessman can’t expect no return from a fixed fight. Now, if you can’t trust a fix, what can you trust? For a good return, you gotta go bettin’ on chance — and then you’re back with anarchy.
A real yawner. Just checked pre-market open. As of 6:07 Eastern, just noise so far.
Check out Kurosawa’s Yojimbo. It’s the inspiration for Miller’s Crossing, and it’s a masterpiece.
Miller’s Crossing is also a masterpiece. That was my introduction to the Coen brothers, followed by Raising Arizona, which, what a contrast.
I recognize the knee jerk (algo-driven?) market reaction to the Pelosi/Mnuchin talks, but have a hard time thinking human market participants really expect anything substantive before the election. This is just Pelosi, and increasingly Trump I think, maneuvering to put the blame on Senate Republicans.
The question I am increasingly interested in is whether, after the election, there is a scenario in which something gets passed.
If McConnell succeeds in shoving Coney Barrett down their throats, there is no way Pelosi and House Dems will accept a stimulus package on McConnell’s terms; it’ll be Nancy’s way or the highway.
Holy crap, when does all this stimulus hit the fan (the US dollar). Can we print and borrow forever? And the most difficult pill to swallow is a predominate share of it goes to the upper crust. I get that many people are hurting, but help needs to go to them and not as a back stop to investors who have taken exorbitant risk believing the Fed and government are tantamount to FDIC insurance. We now expand credit about $5 to get $1 dollar of growth. It is estimated that 18% of corporate bonds are to “Zombie ” companies who don’t have the NCAO to cover debt service. So, yes, people are hurting, but the blanket approach is going to lead to more pain at some point in the future. It may out live me, but it won’t my sons, grand children…
Yes, we can print and “borrow” forever. And it’s not “debt.” We’re not “borrowing.” You can’t “borrow” something you print. The US government has no need to “borrow” dollars. The idea that your sons or grandchildren will need to pay back the national “debt” is nonsense. We could pay off the national “debt” tomorrow with one keystroke at the Fed and inflation wouldn’t budge.
None of that is “theory” or opinion. It is fact. Treasurys serve a purpose, but funding the government isn’t one of them. That’s a canard. Actually, “canard” is too kind. It’s just not true. USTs are interest-bearing dollars. That’s all they are. We don’t “owe” China or Japan or anybody else anything other than an accounting entry.
The rest of your comment, however, is good. The issue is that you are conflating currency users with currency issuers.
https://heisenbergreport.com/2020/10/17/its-not-debt/
Thanks for your reply. I have great respect for your writing and perspective. OK, I get your arguments on treasurys (I prefer also) and how it’s not debt but accounting. But printing dollars still affects total credit issuance in commercial, state and local government, and personal balance sheets. There is no honest price discovery for interest rates and to assume there will never again be an inflationary period defies common sense. At some point the bond vigilantes will rise again and outstanding credit will matter. I don’t mean to go full Austrian economist on you, but I truly don’t believe the Fed can exterminate the credit cycle and the more they intervene the bigger the fall will be. So I’m again back to my concerns about my kid’s and grandkid’s future.
“The bond vigilantes” cannot “rise again” if the Fed doesn’t want them to. Rates are a policy variable. There is nothing (nothing at all) that says the US government has to pay any “market rate.”
If the Fed wants to come out tomorrow and say “Look, 10-year yields are never, ever, ever, ever, going to rise again, and if you doubt that, then go ahead and short 10s and see what happens,” then that will be that.
Remember, the US has implemented yield-curve control before. If they do it again, your argument about “bond vigilantes” as it relates to Treasurys simply won’t make any sense. It sounds as though you are reluctant to accept the reality that no “vigilante,” no matter how deep-pocketed, can go up against a determined central bank with sufficient monetary sovereignty, let alone the Fed. That’s a suicide mission. It won’t work because it can’t.
Go look at a chart of Australian 3-year government bond yields for this year. See if you can pinpoint the moment when the RBA implemented YCC (it’s not hard). Or better yet, just ask anybody who’s ever shorted JGBs how it works out when you decide to take the other side of the trade against a central bank.
And no, the Fed cannot extinguish the credit cycle, but fiscal policy with sufficiently aggressive automatic stabilizers can blunt it — a job guarantee for example, would be a helluva start.
As for “Austrian economics,” it’s not “economics.” It’s not anything. It shouldn’t even be mentioned in textbooks unless there’s a chapter called “Bad Jokes.”
10 years ago or so, a GOP politician from a rural part of my state proudly announced that he was a proponent of the Austrian School of economics.
Sadly, I never had the chance to question him if that extended to the Austrian views on free/open trade and …. omygawd …. open borders to allow workers from overseas to come and take jobs.
I’ll bet that the rural Republican would have answered with a hemming & hawing worthy of a hip hop song.
OK, not trying to be argumentative, just trying to learn from some others with more modern rationale. What are the limits of MMT? We all suspect that it can’t make everybody rich. But how will we know when it’s enough and not too much? What is the “tipping point”? How will we know when we approach the tipping point? Most of us don’t trust the government to stop spending past the tipping point. What would be the consequence of that? I’ve lived through inflationary times when people complained a lot but were mostly gainfully employed and happy, and through some kind of deflationary times when the mood was very sour. Demographics are not our friend for the status quo but can we alter that path, and what are the risks? I’ve seen many one sided arguments and haven’t seen a balanced assessment.
Here’s a compromise that might makes sense: since there is also some $500 Billion of unspent, but allocated, dollars from prior stimulus laws that ought to be able to be reallocated, let the Dems agree to the McConnell proposal and the Republicans agree to allowing Ms. Pelosi and Co. to reallocate and direct the unspent funds. That’s a Trillion dollars right now. Everyone could claim some victory, and some deserving people might get some relief from the pain they are in. And then, post election, those politicians who will still be around next year can provide some leadership to address the rest. I know, wishful thinking
For those hoping for a stimulus deal, grab a dictionary and look up the term “FAT CHANCE”
Japan’s national debt to GDP ratio is more than twice what we have, with hardly a trace of inflation. What Japan does have is interest rates near zero and socialized medicine. That is more likely where we are headed. Keep floating “zombie” companies with cheap debt and you get minimal growth and innovation, and an even greater need for public services.
I think there is one important point that needs to be recognized: Debt owned by the Central Bank (in most countries) is not actually debt.
In most counties the Central Bank is owned (de jure or de facto) by the government. Therefore any debt issued by the government and owned by the Central Bank is netted out if you produce a consolidated balance sheet for ‘the government’. The debt of the parent to the subsidiary net out. The true debt position of any government should be calculated net of the debt owned by the Central Bank (or any other government owned entity).
We were taught this in our first year undergrad Accounting course, in balance sheet consolidation. I have never understood (and no-one has ever given me a good explanation) why this is not applied when considering government debt. As far as I can see the Debt/GDP ratio’s quoted in the media are meaningless.
As I understand it, the limits of MMT are inflation. When inflation takes off, we’ll know the printing presses have to take a break.
Problem is, the presses won’t be able to take a break, because we will be structurally dependent on running the printing presses at high speed, to do things like pay for Healthcare and Schools and Defense, stuff that no government will dare interrupt. The easier decision will always be to let inflation run hotter. Until it isn’t, and then we’ll find out what a real crisis is…
I don’t have any problem with printing 10TR to get us out of this Covid hole and another 30TR to convert our economy to a green, equitable, etc one. One time printing, even in huge size, is manageable, especially if it leads to productive investment. But getting structurally dependent on multiple TR/year deficits is a future disaster.
JYL – my meagre reading on the subject indicated that if inflation kicks up, taxes should be raised to tame it. So a fiscal, not monetary, response. Given the two year election cycle in the US, it is easy to be skeptical that the US Congress would do so very aggressively.
I said “If inflation kicks up” because as T-Dog pointed out above, it is not inevitable, at least in the short term. Japan is a real-life example of MMT in action. So far it has not been so bad.