Sometimes the markets are ahead of the political indicators and sometimes they trail. In the last week, however, financial markets seem to have adjusted to the new political reality of a president under siege much quicker than have the political players, who remain in a state of denial about President Trump’s and the GOP’s ability to push forward with their agenda.
The Post reports: “It took the almost daily revelations of potentially impeachable offenses for Wall Street to completely come to terms with the fact that Trump may not be able to deliver all the tax cuts and infrastructure spending and deregulation—oh my!—that it had been counting on.” That realization shook the stock market, which suffered its biggest one-day decline since autumn on Wednesday. (From MarketWatch: “The S&P 500 and Dow industrials on Wednesday posted their largest one-day decline since September as fears over the fallout from turmoil in Washington prompted investors to unload risky assets such as equities. Investors grew increasingly concerned that political turmoil in Washington would delay or prevent President Donald Trump’s tax reforms and other fiscal stimulus measures.”)
Wall Street finally started to catch on in the last month, but it’s only now that Trump seems to be self-immolating with metronomic frequency that traders have given up all their dreams of a big, fat Trump stimulus. Which is to say that the dollar is back to where it was on election night. After all, it’s not like a lot of legislation passed during the Watergate hearings. If that’s where we’re headed, then we’re not just talking about tax reform being pushed off until 2018, which was already fraught because election years are where bills go to die, but for the future. That’s because the way things are going, there’s at least a decent chance that Democrats could take back the House in the midterms. Republicans, then, may only have eight or 10 more months to realistically get things done.
While Trumpkins talked about “animal spirits” that Trump’s election unlocked, we saw irrational exuberance, a vast overestimation of the competency of the presidency and underappreciation for the divisions within the GOP that made multiple, enormous legislative projects unlikely to succeed.
Let’s face it: We’ve seen for months how unable the House is to pass politically popular and substantively sound health-care policy. Congressional representatives have chewed up months on a bill which has no chance of moving in the Senate. In the Senate, it is far from clear that any bill is going to pass. “Sen. Susan Collins says the 13 Republican senators charged with drafting a health care bill to replace the Affordable Care Act are unlikely to succeed,” reports her home state’s Portland Press Herald. “The committee (that) Republican leadership has convened is going to produce a partisan bill,” Collins told the newspaper. “I disagreed when President Obama produced a partisan bill. That’s not the best way for Republicans to legislate now.” So much for that. The Senate, however slight the chance of success, is going to chew up many more months on health care. Before you know it, we will be into the budget fight with a Sept. 30 deadline.
Meanwhile the House is agonizing over tax reform, with no clear path forward. Treasury Secretary Steven Mnuchin’s testimony in front of the Senate Banking Committee should scare the living daylights out of anyone concerned about the debt. He was clear on the major tax cuts and utterly unforthcoming on how to make up lost revenue. He also suggested that the Treasury would come up with its own estimate on the effects of the plan. Oh, swell. Treasury will sprinkle fairy dust on a budget-buster, pronounce it revenue-neutral and try to con the markets and Congress into accepting a plan that will add trillions more in debt. The odds of getting tax reform completed this year are slim to none.
So yes, a complete strike out on major legislative initiatives this year is not only possible but likely. Will anyone be smart enough to come up with a Plan B? Considering how impossible the agenda was to begin with, how paralyzed the White House will be and how divided the GOP is, you would think someone would come up with some ideas to hit singles and doubles, rather than strike out aiming for the fences. What would that look like? A realistic option would include corporate tax reform (not cut) that lowers the rates and broadens the base with no significant revenue loss and no big break for so-called pass-through companies. Another doable endeavor would be an infrastructure and job-training bill. A third would be a targeted health-care bill to address a discrete problem, such as the unavailability of health-care providers in rural areas. In other words, rather than nothing, Congress could recognize reality and produce some modest but important bipartisan legislation.
But that would take sober leadership from the White House and competent congressional leadership. If we had that I suppose we wouldn’t be in this fix in the first place. So, yes, the markets have finally figured out this will be an unproductive year. The good news is that with 4.4 percent unemployment and some upward movement on wages, the economy will plod on — so long as Trump doesn’t blunder into a government shutdown, a trade war or a disastrous international incident.