The Politics of it all...
Macro Perspectives: Fri 25 Sep 2020.
We had a “risk-off” rangebound type of day in the markets (Global Equity Performance shown below), I’ll take the lack of significant moves to discuss some of the politics likely to affect the makets.
We've heard a lot this week from Jay Powell (Fed Chair) and Steve Mnuchin (Treasury Secretary) as they've addressed House and Senate committees on the coronavirus relief efforts.
The Senate Banking Committee have had their shot - the markets liked some of the headlines (although I still doubt we get a second fiscal stimulus deal).
These events are always used by politicians as an opportunity to grandstand for personal political gain - they get face time on national TV, and they use it. And in the current environment, they are sure to use it in an attempt to further the narrative of the party.
This week was all about communicating to the American people that they want to get money to them, but the other side is obstructing. Not a recipe for getting a deal done.
Moreover, history shows us that these massive packages only tend to get done when a crisis is at peak severity and both sides are scared. With that said, with the funds for the extended federal unemployment subsidy set to run out, in some states, this week, we could be in for a very difficult October.
The democrats want a big "comprehensive" package. The word comprehensive means they want relief money for state and local governments, and they want money to invest in their vision of the future.
The Republicans want a targeted package. They want to address unemployment and small businesses, without bailing out what they deem to be mismanaged states.
With both sides of the Senate committee belaboring over the need for more aid, Mnuchin offered up an easy and quick stop gap.
There is $200 billion of unspent money from Cares Act 1.0 & there is $130 billion of unspent money from the Payroll Protection Program.
He called on Congress to reallocate and reauthorize use of these funds, and send checks to the hardest hit small businesses. That would further erode the negotiating positions within Congress, so that won't happen.
But Trump may be able to re-allocate those funds by, once again, using Executive Order.
Remember, while Congress has exclusive control of the purse, once it has appropriated funds, "the President and executive branch enjoy considerable discretion as to how those funds are spent" (link to a paper below). Another executive order to get money in the hands of the unemployed and struggling small businesses would bridge the country to the election finish line, and leave big stimulus bullets to fire for the winner.