December 8 Government Shutdown Odds Spike as Trump Shuns “Chuck and Nancy”
In the latest case of déjà vu on Capitol Hill, a return of September’s government shutdown fears seems likely. President Donald Trump’s latest missive on Twitter strongly suggests that a spending deal with Democratic leaders Chuck Schumer and Nancy Pelosi won’t come together. That’s potentially bad news for various American interests, including those relying on social services.
Meeting with “Chuck and Nancy” today about keeping government open and working. Problem is they want illegal immigrants flooding into our Country unchecked, are weak on Crime and want to substantially RAISE Taxes. I don’t see a deal!
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— Donald J. Trump (@realDonaldTrump) November 28, 2017
This upcoming conflict is related to the debt ceiling crisis, which came to a head in September. At the time, an annual spending bill needed to be passed by September’s end to avoid U.S. government default. Had a temporary agreement not been struck, America was at risk of numerous nasty consequences and a patchy government shutdown.
The last point is not just a matter of conjecture. Analysts from the highest levels of the government-corporate nexus came to the same conclusion.
For instance, Fitch Ratings said that prioritizing debt service payments to creditors “may not be compatible with ‘AAA’ status.” The notion splashed cold water on those believing the government could wriggle its way out of a crisis by prioritizing payments. It’s another way of saying that a U.S. credit rating downgrade was probable if a deal hadn’t come together. (Source: “Fitch: US ‘AAA’ rating at risk if debt ceiling not raised,” CNBC, August 23, 2017.)
The American Enterprise Institute’s James Pethokoukis viewed the crisis in political terms. He concluded that a government shutdown would be evidence that Republicans can’t run the government, which would undermine economic security countrywide. “The issue is that investors interpret this as a sign that Republicans are unable to govern because obviously it’s coming at almost the exact same time as the debt ceiling fight, which … indeed is a huge market event.” (Source: “A government shutdown wouldn’t be a huge market or economic event: Analyst,” CNBC, August 23, 2017.)
Lest you think that the debt ceiling crisis was benign, it wasn’t. Ultimate corporate insider Goldman Sachs Group Inc (NYSE:GS) at one point projected “50/50” odds of a government shutdown. (Source: “Goldman Sachs puts odds of government shutdown at 50/50,” CBS Moneywatch, August 18, 2017.)
Had it not been for Hurricane Harvey, a government shutdown may have transpired. Harvey galvanized both Republicans and Democrats to come together in mutual interest by combining a stopgap spending measure with relief aid to Texas while avoiding a protracted legislative battle. Holding up state reconstruction funds to wrangle over partisan federal funding never would have sat well with Americans. Both sides killed two birds with one stone.
Schumer and Pelosi Look to Bypass Trump
Today’s dynamic is a complete 180 from the events in early September. Back then, it was Donald Trump who bypassed Republican leaders Paul Ryan and Mitch McConnell to strike a temporary debt ceiling deal with the Democrats. Now, Schumer and Pelosi are taking the complete opposite approach; both are reaching out to Congress for solutions.
The top two Democrats in Congress canceled a planned meeting with Trump in the Oval Office upon catching wind of his tweet about them. In a joint statement, Schumer and Pelosi said, “Given that the President doesn’t see a deal between Democrats and the White House, we believe the best path forward is to continue negotiating with our Republican counterparts in Congress instead…we’ve asked Leader McConnell and Speaker Ryan to meet this afternoon.” (Source: “Democrats cancel meeting after Trump says ‘I don’t see a deal’ to prevent government shutdown, CNBC, November 28, 2017.)
Given that Congress hasn’t passed one piece of major legislation since the inauguration of Donald Trump, I’m not holding my breath that a deal gets ironed out. But the stakes are quite high.
A government shutdown would stoke political divisions and deepen “anti-Trump” sentiment within America’s liberal base. It could also roil the stock and credit markets, by undermining investor confidence and placing upward pressure on interest rates.
The last thing Trump needs right now is to undermine the one area in which everyone concedes he’s winning: the economy. His “Make America Great Again” (MAGA) agenda is completely based on Trump’s ability to foster a robust economy. If he loses that, he loses all leverage.
For that reason, I believe Trump’s tweet is just political posturing. When the chips are down, he will intervene and get a deal done. Trump hasn’t built in enough political capital to posture like this.
