President Trump says he wants to get serious about tackling the deficit. But he also wants to spend big on infrastructure, slash taxes for the middle class and build a Mexican border wall. He won’t allow cuts to Social Security or Medicare. And he is demanding a mostly hands-off approach to military funding.
In other words, the president isn’t actually serious about tackling the deficit. Trump’s conflicting instincts on the matter are laid bare in a Sunday report from The Post’s Josh Dawsey and Damian Paletta. The takeaway: The red ink exploding on his watch has spooked the president — just not enough to force the sort of hard choices that will rein it in.
Indeed, it seems inevitable the self-proclaimed “king of debt” will only push for more deficit-financed goodies as he ramps up for 2020. As he told Sen. Bob Corker when the Tennessee Republican pressed him to contain spending during a round of golf last year, per Josh and Damian, “The people want their money.” Or consider Trump’s continued effort to claim credit for any near-term economic improvements Americans might be noticing:
So great that oil prices are falling (thank you President T). Add that, which is like a big Tax Cut, to our other good Economic news. Inflation down (are you listening Fed)!— Donald J. Trump (@realDonaldTrump) November 25, 2018
On the flip side, "President T" has time and again demonstrated an aversion to fiscal restraint. The story has some eye-opening details:
— Trump repeatedly told then-National Economic Council director Gary Cohn to print more money. One former senior administration official says the president would “just say, run the presses, run the presses. … Sometimes it seemed like he was joking, and sometimes it didn’t.”
— Cohn told staffers not to waste time with a presentation on the deficit. The former Goldman Sachs No. 2 said it wouldn’t be necessary, since Trump didn't care.
— Trump appears to have a limited sense of what the federal government spends — or at least what it pays. “Chief of Staff John F. Kelly has told others about watching television with Trump and asking the president how much the chairman of the Joint Chiefs of Staff earns. Trump guessed $5 million, according to people who were told the story by Kelly, startling the chief of staff. Kelly responded that he made less than $200,000. The president suggested he get a large raise and noted the number of stars on his uniform.”
The anecdotes point to an axiom of Trump’s economic approach: As with his personal diet, the president prefers to opt for the policy equivalent of junk food.
Trump’s signature legislative achievement provides the most consequential example to date. The president and his party quickly abandoned a pledge to pay for slashed tax rates by finding new sources of revenue. Instead, they pushed through a package projected to add $1.5 trillion to the deficit over the next decade.
That, in addition to a bipartisan $1.3 trillion spending bill, has supplied the economy with a sugar rush at a moment when Washington has typically focused on belt-tightening. And it has produced a divergence between the unemployment rate and the deficit unheard of in modern American peacetime, as this chart from Goldman Sachs illustrates:
The jolt Trump has delivered to the system is already forcing a reckoning, as the Federal Reserve continues hiking interest rates to keep the economy from overheating. And some on Wall Street see a comedown looming that could tip the economy into recession in the next couple years.
But as Trump flirts with ordering some fiscal veggies, he's also continuing to lash out at those recommending a more balanced approach.
He’s recently soured on Treasury Secretary Steven Mnuchin, a stalwart loyalist, because he blames him for recommending the appointment of Jay Powell to head the Fed, the Wall Street Journal reports. “Mr. Powell’s policy moves this year, though, haven’t surprised markets,” the Journal writes. “While Mr. Trump wants faster growth, the Fed sees its job as ensuring the economy doesn’t revert to a boom-and-bust cycle, a role made potentially more challenging by recent tax cuts and federal spending increases approved by Mr. Trump.” And Trump and Mnuchin have clashed over the Treasury secretary’s opposition to tariffs, which are also inflationary.
Perhaps no surprise then that the spending cuts Trump is eyeing are far too meager to make a dent in the deficit.
Per Josh and Damian, the president wants a 5 percent trim in discretionary spending. “But cuts of that magnitude would probably reduce the deficit by about $70 billion, and it’s projected to reach $1 trillion next year, showing the magnitude of the tax cuts and other parts of the budget that have remained untouched.”
Holding the hot fudge won’t transform a sundae into a salad.
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— Global markets suffer. WSJ's Akane Otani and Michael Wursthorn: “Stocks, bonds and commodities from copper to crude oil to burlap are staging a rare simultaneous retreat, putting global markets on track for one of their worst years on record and deepening a sense of unease on Wall Street. Data show global stocks and bonds could both finish the year in the red for the first time in at least a quarter-century, according to BlackRock Inc. Major stock benchmarks in the U.S., Europe, China and South Korea have all slid 10% or more from recent highs.”
Is the market signaling a recession? Bloomberg News's Elena Popina and Vildana Hajric: “Nine turbulent weeks and a correction in U.S. stocks have left analysts with a thorny question. What’s the market saying about the economy? And while few see incontrovertible signs investors are bracing for a recession, it’s a word that’s been coming up more as they seek a signal in the chaos. From the ascent of defensive industries to the sudden craze for companies that resist volatility, stocks are acting in ways that have presaged slowing growth in the past. That makes sense: gains in the economy and corporate earnings are forecast to ease in 2019 from this year’s torrid pace...
"Many view the sell-off as healthy after a 10-year run of gains. But with a trade war flaring and the Federal Reserve set to boost interest rates again, the number of stock researchers who are at least willing to mention the possibility is rising.”
Fed not likely to adjust. CNN's Matt Egan: "After analyzing all Fed meetings since 1994, Goldman Sachs concluded that market selloffs are more likely to worry the central bank if they coincide with significant stress in the credit markets and weak economic growth. For instance, the Fed kept hiking in May 1994 and August 2004 because those market slumps occurred during strong growth periods. Today, credit spreads have only widened moderately and growth remains strong."
— E.U. leaders approve Brexit deal. WSJ's Max Colchester and Laurence Norman: “European Union leaders approved on Sunday a treaty outlining divorce terms with the U.K., a milestone in Britain’s bid to extract itself from the bloc that now leaves Prime Minister Theresa May with a tough task selling the deal to skeptical lawmakers in Parliament. ... The focus now shifts to London, where Parliament is expected to vote on the deal in December and where dozens of Mrs. May’s fellow Conservative Party lawmakers, as well as some members of the opposition Labour Party, have trashed the deal. ...
"Should Mrs. May fail to secure political backing at home, she might try to return to Brussels to try to get improved terms before the U.K. is due to leave the bloc March 29. Leaving with no deal come March could cause big disruptions to trade and security ties that, some fear, could even lead to food and medicine shortages in the U.K. and a breakdown of communications between the E.U. and Britain over suspected terrorists and other criminals.”
Trouble ahead in parliament. Bloomberg: "The U.K. Parliament is on course to reject Theresa May’s Brexit agreement in a crucial vote next month, a senior minister admitted, as the prime minister seeks to persuade skeptical politicians and voters it’s the only deal available. Newly appointed Brexit Secretary Stephen Barclay said there did not seem to be enough support in the House of Commons to allow the plan finalized with the European Union over the weekend to pass."
— U.S.-China poised for a G20 breakthrough or breakdown. Reuters's Leigh Thomas: "The United States and China have in the coming week what may be their last chance to broker a ceasefire in an increasingly dangerous trade war when their presidents meet in Buenos Aires. With global growth increasingly suffering from frictions between the two biggest economies, tensions will come to a head when [Trump] and Xi Jingping meet on the sidelines of a G20 summit in Argentina... 'If no deal is reached, investors should come to realize that tariffs are no longer a bargaining chip to bring China to the negotiation table,' Daiwa Capital Markets analyst Kevin Lai wrote in a research note."
Ignatius: Make a deal. "If [Trump] is the dealmaker he claims to be, he should use the upcoming Group of 20 summit in Buenos Aires to declare a win in his trade war with China — before his bombast does any more damage to the global economy," The Post's David Ignatius wrote last week.
China is also at a crossroads. The New York Times's Keith Bradsher and Li Yuan: “China’s economy now stands as an alternate narrative to Western ideals. And yet the decisions the Communist Party made to secure its economic future have led Beijing to its biggest test since Tiananmen Square. Its goals — a complicated mix of juicing the economy, cleaning up the country’s air and water and meeting its people’s rising expectations — have become harder to reach. Its efforts to spur growth have left the country staggering under trillions of dollars in debt, while the world is taking aim at China’s industrial ambitions.”
— Tech warns of fallout. FT's James Politi and Tim Bradshaw: "Silicon Valley has rung alarm bells over the Trump administration’s latest salvo in its trade war with China — a threat to put export controls on a wide range of emerging technologies including artificial intelligence and robotics. US technology companies are concerned that the sweeping nature of the commerce department targets, imposed on national security grounds, could undermine the goal of maintaining a US lead in the sector... Analysts point out that if the intent is to deprive China of machine learning technologies, for example, these often emerge not in corporate development labs but in academic research, which is published openly. The lack of exclusivity means any attempt to constrain US companies from selling such technologies abroad may just advantage rivals in other countries."
- “Ex-Trump campaign aide George Papadopoulos must report to prison Monday, judge orders.” The Post's Rosalind S. Helderman and Matt Zapotosky.
- “Rep. Gowdy suggests videotaping Comey testimony to prevent selective leaks.” Matt Zapotosky.
“Senior House Democrats tap brakes on investigating Trump.” Reuters’s Ginger Gibson and Mark Hosenball.
"Jared and Josh Kushner buying luxe Lower East Side hotel." The New York Post's Richard Johnson.
— Ghosn says he acted appropriately. WSJ's Sean McLain: “Carlos Ghosn received tens of millions of dollars in deferred compensation at Nissan Motor Co. and told colleagues he was acting appropriately when he didn’t report that money in financial disclosures, people familiar with Nissan’s investigation said. The new information suggests a possible line of defense emerging for Mr. Ghosn, who was arrested Nov. 19 in Tokyo on suspicion of underreporting his income in financial statements by ¥5 billion, or about $44 million, over five fiscal years ended March 2015.
"The Japanese car maker’s annual reports to regulators show Mr. Ghosn received about ¥1 billion, or $8.9 million, for each of those five years. People familiar with the Nissan investigation said it alleged he earned a similar amount in deferred compensation that was to be paid at retirement. ... Mr. Ghosn has told prosecutors he denies wrongdoing, Japanese public broadcaster NHK said Sunday.”
— Dolce&Gabbana apologizes to China. The Associated Press's Ken Moritsugu and Colleen Barry: “Don’t mess with China and its growing cadre of powerful luxury consumers. Dolce&Gabbana learned that lesson the hard way when it faced a boycott after Chinese expressed outrage over what were seen as culturally insensitive videos promoting a major runway show in Shanghai and subsequent posts of insulting comments in a private Instagram chat. The company blamed hackers for the anti-Chinese insults, but the explanation felt flat to many and the damage was done. The Milan designers canceled the Shanghai runway show, meant as a tribute to China, as their guest list of Asian celebrities quickly joined the protests. Then, as retailers pulled their merchandise from shelves and powerful e-commerce sites deleted their wares, co-founders Domenico Dolce and Stefano Gabbana went on camera — dwarfed against the larger backdrop of an ornate red wall-covering — to apologize to the Chinese people.”
— Campbell Soup and Third Point close to deal. WSJ's Cara Lombardo and Annie Gasparro: “Campbell Soup Co. is nearing a settlement with investor Daniel Loeb that would skirt the board coup he sought but give him some representation in the boardroom as the packaged-foods giant tries to revive its business. Campbell is expected to agree to add two new board members nominated by Mr. Loeb’s Third Point LLC as part of the deal, the people said, expanding the size of the board to 14 members from 12. The two Third Point nominees expected to join the board are Comscore Inc. President Sarah Hofstetter and former Blue Buffalo Chief Executive Kurt Schmidt, they said. The deal being discussed is similar to the offer Campbell made to Mr. Loeb earlier this month, the people said, which Mr. Loeb rejected at the time. ... The deal hadn’t been finalized as of Sunday afternoon, and talks could still fall apart. A shareholder vote is scheduled for Thursday.”
— Trump administration invites health care industry to rewrite kickback rules. NYT's Robert Pear: "The Trump administration has labored zealously to cut federal regulations, but its latest move has still astonished some experts on health care: It has asked for recommendations to relax rules that prohibit kickbacks and other payments intended to influence care for people on Medicare or Medicaid. The goal is to open pathways for doctors and hospitals to work together to improve care and save money. The challenge will be to accomplish that without also increasing the risk of fraud.
"With its request for advice, the administration has touched off a lobbying frenzy. Health care providers of all types are urging officials to waive or roll back the requirements of federal fraud and abuse laws so they can join forces and coordinate care, sharing cost reductions and profits in ways that would not otherwise be allowed."
— Industry wants more from Mulvaney. WSJ's Yuka Hayashi: "Mick Mulvaney, as acting director of the Consumer Financial Protection Bureau, has softened the agency’s hard-charging approach that financial companies had long complained about. One year after his appointment, the industry is pleased, but not fully satisfied. Mr. Mulvaney, appointed by President Trump last November, over the past year has made a number of changes that the financial industry has hailed, including a pullback in enforcement actions, an easing of supervisory activities, and a pledge to redo a new payday-loan rule that lenders warned would decimate them. But many in the industry had expected Mr. Mulvaney to move more swiftly to blunt the power of the agency and ease regulations in areas such as mortgage disclosures, debt collection, and prepaid cards."
- The Clearing House and Bank Policy Institute’s 2018 Annual Conference in New York through Wednesday.
- Federal Reserve Chair Jerome H. Powell delivers a speech at an Economic Club of New York luncheon on Wednesday.
- Federal Reserve Chair Jerome H. Powell appears before the Joint Economic Committee on Dec. 5.
- Senate Banking Committee hearing on “Oversight of pilot programs at Fannie Mae and Freddie Mac” on Dec. 5.
Rep. Gowdy says personal email use is “not a crime”:
Migrant caravan crisis escalates with tear gas at border fence:
What President Trump hasn't done for Hispanics and African Americans: