Softening Economy Won’t Get Immediate Help From Washington
Author: Greg Valliere
July 27, 2020
THE LAST WEEK OF JULY is always a tense period in Washington, as lawmakers rush to pass legislation and leave this sweltering city for a month-long vacation. The last week of July will be particularly difficult this year.
WITH THE ECONOMY SOFTENING and new Covid-19 outbreaks in the Sunbelt and much of the globe, a major new stimulus bill is absolutely crucial to avoid a recession. Failure to act would remind many economists of the early 1930s — when Washington did the wrong thing, embracing fiscal restraint in the face of a dire crisis.
WE’RE STILL CONVINCED that a bill will pass, but it won’t be easy. Mitch McConnell will unveil the $1 trillion GOP package late today, with $1,200 stimulus checks, aid to schools and big business, eviction relief, liability protection, etc. He will proclaim that the Senate has a deal — but then the hard part will begin.
THE McCONNELL BILL will encounter a furious assault from Democrats, who won’t agree to any measure that doesn’t include at least $400 billion for state and local governments and more generous unemployment benefits than the extra $200 per week — down from $600 per week — proposed by Steven Mnuchin. The Democrats will demand a package costing at least $2 trillion.
McCONNELL RAISED EYEBROWS THIS WEEKEND with his prediction that talks with the Democrats could take several weeks. That would be disastrous for the economy and would make Republicans the sure losers in a blame game.
FACED WITH HUGE ISSUES BETWEEN BOTH PARTIES, some Republicans are suggesting a piecemeal approach — passing unemployment benefits and a few other provisions like stimulus checks and liability reform — deferring action on the rest of the bill until later this summer. Good luck with that — Nancy Pelosi wants a comprehensive bill, and if there isn’t one, she would be happy to take her case to the public.
THIS CONGRESSIONAL GAMESMANSHIP seemingly ignores the unfolding impact on people’s lives, as evictions and bankruptcies surge. Thousands of companies — from the airline industry to small restaurants — are still laying off workers.
IF THE TWO PARTIES BOG DOWN LATER THIS WEEK, the key player undoubtedly will be Donald Trump, who could demand that his party accept a more generous bill, perhaps in the $1.5 trillion neighborhood. He needs an improving economy to boost his shaky re-election prospects; money will be no object.
PELOSI AND MNUCHIN could cut a deal in 48 hours, but they both face opposition within their parties — Pelosi from progressives who want to spend much more than $1.5 trillion, Mnuchin from deficit hawks, many of whom don’t want any stimulus bill. We think the center will hold — but when??
OUR BEST GUESS IS THAT CONGRESS will pass a bill by Aug. 7, when the summer recess is scheduled to begin; maybe lawmakers will have to stay in town for a few days after then. We still think there’s a 70-30 chance of a bill passing — hardly a certain bet — as this very difficult last week of July begins.
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