Happy Budget Day. Welcome to Infrastructure Week. And if you read no more about the Trump administration’s spending blueprint and its plan for updating the nation’s crumbling public works, you probably won’t be missing much.
The fiscal year 2019 budget was rendered pretty much obsolete last week when Congress adopted a sweeping deal to keep the government funded until March 23 while setting spending levels for the next two years. It gooses spending on the military and domestic programs by $500 billion over two years and ushers in the return of trillion-dollar deficits as soon as next year.
President Trump endorsed the compromise. But White House budget director Mick Mulvaney -- a former fiscal hawk while a South Carolina congressman -- told CBS News’s “Face the Nation” on Sunday the deficit-financed fiscal stimulus the package will deliver is a “very dangerous idea” that he would have opposed if he were still in Congress. And he said in an appearance on "Fox News Sunday" that interest rates could "spike" as a result.
The administration’s own budget forecasts 3 percent growth every year for the next decade in part by relying on some rosy — and outdated — assumptions about the nation’s borrowing costs despite yawning deficits. As The Wall Street Journal’s Nick Timiraos writes, the budget projects the 10-year Treasury yield will hover below 4 percent, though the last time the economy grew at such a healthy clip, that represented the floor rather than the ceiling for the payout on U.S. debt.
Martin Sullivan, chief economist for Tax Analysts, dismissed the document outright since it will rest on faulty assumptions:
Don’t be distracted by Administration budget release Monday. It’s fantasy. CBO’s yet-to-be-released baseline budget deficit estimates are the new reality we must live with.— Martin Sullivan (@M_SullivanTax) February 11, 2018
My colleague Damian Paletta scoops that in light of the $1.5 trillion tax cut and new spending agreement, the proposal also abandons the cornerstone GOP goal of bringing federal spending into balance over the next 10 years: It will call for shrinking the growth of the deficit by $3 trillion over a decade, not enough to eliminate it.
And it means even more may greet the administration’s infrastructure proposal as a piece of bloated flotsam rolling in on a tide of red ink.
The White House is set to call for $200 billion in new spending over a decade in a bid to unleash some $1.5 trillion from other levels of government and private sources. But it isn’t spelling out how lawmakers should cover the cost. “For now, the White House is suggesting that lawmakers cut money from elsewhere in the budget, including some existing infrastructure programs,” the Washington Post’s John Wagner and Heather Long write. “That prospect seems unlikely given that Congress just last week reached a bipartisan deal to spend significantly more funds over the coming two years… In a briefing over the weekend for reporters, senior White House aides stressed that Trump’s plan is intended to be an opening bid on legislation that will require bipartisan cooperation to pass.”
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— Stocks bounce back. Bloomberg's Eddie Van Der Walt: "Equities advanced in Europe and Asia, giving investors a reprieve from the rout in stocks and the highest volatility spike since 2015. The dollar fell with Treasuries amid concern President Donald Trump’s budget proposal will drop his party’s goal to balance the budget in 10 years. The Stocks Europe 600 index climbed, led by miners and chemical makers, while S&P 500 futures jumped. A cheaper dollar supported commodities, with metals higher and crude oil halting a six-day selloff. South Korean equities and the won rose after North Korean leader Kim Jong Un invited his counterpart to meet. Japan’s markets were closed for a holiday."
— Bridgewater predicts turbulence. FT's Robin Wigglesworth: "The world’s biggest hedge fund has warned that global markets are entering a new era of volatility as the world adjusts to higher interest rates after a decade of ultra-loose monetary policy. Bob Prince, co-chief investment officer at Bridgewater, said last week’s market turbulence, which helped trigger record outflows from global stock funds, was set to continue. 'There had been a lot of complacency built up in markets over a long time, so we don't think this shakeout will be over in a matter of days,' Mr Prince, who runs Bridgewater’s $160bn of investments alongside the fund’s founder Ray Dalio, said in an interview. 'We'll probably have a much bigger shakeout coming.'"
Investors braced. WSJ's Ira Iosebashvili and co.: Markets are struggling to find a new equilibrium after plummeting shares and soaring volatility drove billions of dollars out of global stock markets... The scale of the selling after two years of nearly consistent rises is prompting many traders and analysts to look closer for underlying cracks in the market. Signs in the futures and options markets were still skewed toward bullish positions, suggesting to some analysts and investors that more selling would come. 'There definitely are more warning signs,' said Thomas Martin, senior portfolio manager at Globalt, an Atlanta money manager. 'It’s not as simple as, "Everything is fine, jump back in.'"
— Real economy untouched. AP's Christopher Rugaber: "So far at least, there’s little sign that the correction in the Dow Jones industrial average — it dropped 10 percent from its peak late last month — will squeeze the economy. After rallying by the time the market closed Friday, the Dow is still about 50 percent above where it was after its last correction in February 2016. Most economists see the current drop as an inevitable result of stocks’ rapid ascent since then. And few think most investors are about to curb their spending. Market declines that do end up derailing an economy are typically triggered by financial imbalances — unsustainable debt, for example, which ignited the Great Recession in 2007. Americans haven’t taken on nearly as much debt as they did before the financial crisis. Banks have much more cash in reserve. Regulations have reduced the kind of high-risk mortgage lending that fed the 2008 financial crisis. Corporate profits are strong and growing."
More '98 than 07. WSJ's Greg Ip: "Last week’s stock market dive has triggered a search for parallels: Was it like the stock drops of 1987 and 1998, frightening but of little lasting economic consequence? Or was it more like 2007 when several failed hedge funds and subprime lenders were the tip of an iceberg that sank the entire economy? So far, the right analogies appear to be 1987 or 1998, both cases when some market players were clobbered but, unlike in 2007, had few linkages to the real economy... The latest selloff was triggered by worries that central banks would respond to stirrings of inflation with more rapid interest-rate increases. That, however, was merely the spark. The fuel was a market belief, implemented in complex trades, that a period of low market volatility would persist."
— NAM celebrates. National Association of Manufacturers president Jay Timmons will hail the tax bill's benefits to manufacturers in his annual "State of Manufacturing" address this morning, which will live-stream here at 9 a.m. EST.
From Timmons's prepared remarks: "You can’t overstate how much tax reform matters to the future of manufacturing. For so long, we weren’t playing on a level playing field. Other countries got smart. They lowered their rates so they could win jobs, win business. But now, manufacturers are empowered to compete to win like never before. We’ve seen a lot of great headlines and stories of businesses investing in their workers and communities. That’s just the beginning. There will be longer-term investments too. But we will create more jobs and hire more skilled workers. We will invest in more plants and attract more investment to our shores. And we will enhance pay and benefits."
— Slim worker benefits. CNN Money's David Goldman and Jeanne Sahadi: "Only 13% of companies' tax cut savings will go to pay raises, bonuses and employee benefits, according to a survey of Morgan Stanley analysts released Thursday. 43% will go to investors in the form of stock buybacks and dividends, the analysts predict... Many businesses have announced splashy tax cut gifts for their workers, including raises, better benefits and big one-time bonus checks. As of Monday, more than 300 companies have announced tax-cut-related bonuses and raises, benefiting 3.5 million U.S. workers, according to the White House. Yet that's a small fraction of the 125.5 million Americans who work for a company."
Trump says the best is yet to come:
4.2 million hard working Americans have already received a large Bonus and/or Pay Increase because of our recently Passed Tax Cut & Jobs Bill....and it will only get better! We are far ahead of schedule.— Donald J. Trump (@realDonaldTrump) February 11, 2018
— Inversions come back to bite. WSJ’s Jonathan D. Rockoff and Nina Trentmann: “The new U.S. tax law has something in store for some 'inverted' companies, which signed mergers overseas that lowered their U.S. taxes: higher taxes. Companies that engineered so-called inversion deals in recent years have been able to reduce their tax rates and take certain deductions by shifting their tax homes to other nations. Now, provisions in the new tax code restrict some of those deductions, like the interest payments American subsidiaries pay on loans from overseas parents, according to tax experts and companies... Overall, the new restrictions are estimated to raise tens of billions of dollars in tax revenue, though not all of it will come from inverted companies. Tax experts and companies say the law will reduce the advantages of the corporate relocations, but probably not enough to bring companies back to the U.S.”
— Crackdown on guidance docs. NYT's Robert Pear: "The Trump administration has adopted new limits on the use of “guidance documents” that federal agencies have issued on almost every conceivable subject, an action that could have sweeping implications for the government’s ability to sue companies accused of violations. Guidance documents offer the government’s interpretation of laws, and often when individuals or companies face accusations of legal violations, what they have really violated are the guidance documents. Defense lawyers say the change in policy gives them a powerful tool to fend off allegations of wrongdoing against their clients. It also advances a goal declared by President Trump in his first days in office: to reduce the burden and cost of federal rules and requirements.
But consumer advocates say the move will crimp enforcement of crucial protections. The new policy, issued by the No. 3 official at the Justice Department, Rachel L. Brand, is significant because federal agencies have issued hundreds of guidance documents on a wide range of laws covering issues like health care, the environment, civil rights and labor."
Meanwhile, per AEI's Jim Pethokoukis, Goldman Sachs says Trump's deregulation hasn't helped all that much:
Goldman Sachs on the impact of Trump’s deregulatory push: pic.twitter.com/40vCUQS4bb— James Pethokoukis (@JimPethokoukis) February 11, 2018
— Wells fumbles refunds. WSJ's Gretchen Morgenson and Emily Glazer: "Wells Fargo is having trouble doing right by the customers it has wronged. The big bank acknowledged that it recently sent out 38,000 erroneous communications to customers that it forced to buy unneeded auto insurance. In some cases, according to two people briefed on the matter, Wells Fargo has also sent refunds to people who weren’t the bank’s customers; notified those who were harmed of incorrect amounts to be paid; and told people of coming refunds though they had never gotten the insurance. In another matter, Wells Fargo has yet to begin a broad-based reach out related to refunds for as many as 110,000 customers who were charged improper fees to extend interest-rate commitments they received from Wells Fargo on their mortgages."
— Bitcoin's bottom? Bloomberg's Camilla Russo: "What’s supposed to be the most volatile asset in the universe is proving to be a bastion of stability compared with wild swings and carnage in global equities this week. Bitcoin clawed its way back from the four-month low of $5,922 it touched on Tuesday, rebounding 53 percent to $9,069. The S&P 500 Index and the Dow Jones Industrial Average both fell more than 5 percent this week, wiping out gains for the year. Emerging markets stocks and currencies also plunged, while shorter maturity U.S. Treasuries climbed as investors fled from risky assets to safe-havens... Since the drop below $6,000, Bitcoin has been on a steady climb, causing volatility measures on the digital asset to stabilize while the sell-off in the S&P 500 triggered the biggest jump on the Chicago Board Options Exchange Volatility Index ever."
- The Center for Strategic and International Studies holds an event on oversight and accountability in U.S. security sector assistance.
- The American Federation of Government Employees Legislative and Grassroots Mobilization Conference continues.
- The U.S. International Trade Commission holds a meeting to vote on carbon-quality steel late trade.
- The Center for American Progress holds an event on election security.
- The Senate Budget Committee holds a hearing to examine the 2019 fiscal year budget request on Tuesday.
- The Peterson Institute for International Economics hosts an event on “Charting Europe’s Path Forward” on Tuesday.
- The Urban-Brookings Tax Policy Center holds an event on The Tax Cuts and Jobs Act of 2017 on Tuesday.
- The Small Business Committee will hold a hearing on job creation and small businesses’ role in the economy on Wednesday.
- The House Science, Space and Technology Subcommittee on Oversight and Subcommittee on Research and Technology holds a hearing on bitcoin and blockchain technology on Wednesday.
- The Senate Commerce, Science and Transportation holds a hearing on various nominations for the Federal Trade Commission on Wednesday.
- The Senate Health, Education, Labor and Pensions Committee holds a hearing on the nomination of John F. Ring to be a member of the National Labor Relations Board on Wednesday.
- The Senate Small Business and Entrepreneurship Committee holds a hearing on the nominations of of David C. Tryon to be Chief Counsel for Advocacy of the Small Business Administration and Hannibal M. Ware to be Inspector General of the Small Business Administration on Wednesday.
- The American Enterprise Institute holds an event on the “bubble economy” on Wednesday.
- The Hudson Institute holds an event on the Trump administration’s global economic agenda on Wednesday.
- The Senate Finance Committee holds a hearing on the 2019 fiscal year budget request on Wednesday.
- CFTC chairman J. Christopher Giancarlo testifies before the Senate Agriculture, Nutrition and Forestry Committee on Thursday.
- The Senate Finance Committee holds a hearing on the proposed 2019 fiscal year budget on Thursday.
- The Economic Policy Institute holds a panel discussion on black women and the economy on Thursday.
- The American Enterprise Institute holds a “Conference on the Taxpayer Protection Housing Finance Plan” on Feb. 27.
From The Post's Tom Toles:
How John Kelly’s stance on staff secretary Rob Porter's ouster could foreshadow his own:
The Trump administration wants to privatize the International Space Station:
Watch Stephen Colbert on former president George W. Bush's remarks on Russia's meddling in the 2016 election: