Bill Owens: Confounding And Confusing Events 7/22/19

Jul 22, 2019

Secretary Mnuchin and Chairman Powell both recently advised about the need to raise the debt ceiling, with Chairman Powell indicating dire consequences would flow if the debt ceiling was not raised.  In fact, he called it “unimaginable”, a less sophisticated description is “are you kidding? You really don’t understand the consequences”. This battle has been ongoing for more years than I can count, and it was Republicans from 2010 through 2016 who railed against raising the debt, of course they are same group that railed against deficits, yet they voted to impose a tax cut which is on target to raise the debt by almost $1 trillion.  One of the interesting aspects of this crisis is that tax revenue has fallen well short of what was projected by the Trump administration resulting in less revenue.  To the most rational economist, this is not a surprise, and to most people with common sense, it is not a surprise.  It will be interesting to see how Republicans respond to this call from Secretary Mnuchin and Fed Chairman Powell in the Senate.  Democrats have a long history of agreeing to raise the debt ceiling as they recognized the consequences of a failure to do so.  So far, no tweets from POTUS. 

The House passed a $733 billion defense authorization bill.  The House inserted a provision that will require the President to obtain Congress’ approval before authorizing military force against Iran.  The President has hinted, not so subtly, that he will veto this bill.  This has been an ongoing struggle in terms of the Presidential war powers for years.  Retired Congressman Chris Gibson was a strong supporter of limiting the President’s war powers and requiring Congressional action before deploying troops.  Congressman Gibson, as you may recall, is a retired Army Colonel who had real time experience being deployed as a result of a Presidential action.  I think Congressman Gibson and the Democratic majority are absolutely correct about the executive’s expansion of that power for more than half a century. It is time to rein it in.  We have grown accustom to deploying troops, and in large measure that is because the general public is not being deployed as they were during World War II, the Korean War and Viet Nam.  I hope the Senate has the same courage to act to rein in the executive as the House.

The nuclear deal with Iran has been back in the news because the Iranians announced that they have reached certain levels of Uranium production which brings them closer to the production of a nuclear weapon.  Mr. Trump is now reverting to language which experts believe brings him very close to the deal which President Obama struck with Iran in the past.  This is incredibly ironic because Mr. Trump has basically said that the deal that President Obama made was the worst ever and as always, he uses language which is flamboyant, but frequently imprecise so it’s difficult to know exactly where he’s going or what he wants to accomplish.  If the Obama deal were to be reinstated, it’s quite likely that the Iranian’s would agree to it, although I suspect they believe they have POTUS a bit over the barrel now and would get more in concessions then they might have had President Trump not moved in this direction.  None the less, I suspect the spin will be that the is a Trump Agreement and he will ignore the parallels with the Obama Agreement.  The end result: it is important that we have a deal that keeps nuclear weapons from the Iranians, how we get there is a little more confused and the likely will have more than a few Tweets explaining it.

POTUS announced new Buy America requirements which will dramatically impact Canada and to a lesser extent, Mexico.  The new rules require: 95% of steel in roads and bridges be from the U.S.; general U.S. content increased to 75% from 50%.  Mr. Ford, the Premier of Ontario, labeled this announcement as deeply troubling.  As a Canadian he’s right, as an American this may be the first trade action that could actually bring back manufacturing jobs to the U.S. 

POTUS, at a recent White House event called upon Democrats to pass, or at least not block passage of the USMCA, claiming that there was bi-partisan support for the bill.  He then asserted “There should be no politics involved”, but if the deal was not passed, he had a better plan but provided no further details.  It appears inquiries to the US Trade Representative’s Office also failed to produce a substantive comment on the alternative plan.  This begins to sound much like Mr. Trump’s promises on healthcare, the return of manufacturing jobs to the US, etc.  He probably should stick to tweets, since no one expects any substance in those. 

Huawei has threatened to lay-off hundreds of US workers as a result of restrictions on its purchases from US companies of electronic components. The issue with Huawei continues to be a major stumbling block to a resolution of the Chinese/US trade war.  On that same front, Chinese imports plunged 31%, and their economy is percolating at the lowest level in 26 years as reflected in the most recent quarterly growth reports.  From the US perspective, not surprisingly, false country of origin labels are being inserted into goods shipped to third countries like Korea, Taiwan and Viet Nam from China, with those goods then moving on to the US.  Given the volume of Chinese exports to the United States, the ability of US CPB to interdict these goods and determine their actual place of manufacture is virtually impossible.  If every container were inspected, all of our ports, whether land, sea or air would grind to a complete halt, and commerce would be effectively eradicated. 

This past week, Facebook faced Congressional hearing on its new currency proposal.  The basic theme from Democrats and Republicans to the Facebook executives was “we don’t trust you”.  This creates something of a dilemma, I think for Facebook, at least in the short term.  My sense would be that Facebook does not want much, if any, regulation of this new currency, and I think that that limited or no regulation would be a significant mistake as it could have a long-term negative impact on the banking system, and thus, on consumers and small businesses.  I tend to agree with the members of the House and the Senate that Facebook lacks credibility when it comes to trust, much like the robber barons of the late 19th century and early 20th century, they will do whatever they can get away with. 

Several of my friends locally were concerned with goings on in Washington in light of Mr. Trump’s comments about “sending individuals back”, Speaker Pelosi comments, the action taken by the House, the reactions to both.  I think this is a very, very simple syllogism.  Mr. Trump made those remarks to appeal to his base, the House and Speaker Pelosi took action to appeal to its base.  To no one’s surprise, it’s working.  Mr. Trump is ratcheting up his rhetoric which somewhat surprises me in light of the fact that most recent polls showed him at his highest approval rating, and in the past when he has taken actions like the recent tweet attacking the Squad, it has had the opposite reaction.  Could the polls be telling him something that we are not seeing, we will know when the next poll comes out. 

Send her back is Mr. Trump’s new campaign slogan.  If your family immigrated to America during the period 1880-1920, the Know Nothings expressed the same sentiment.  The term Know Nothings is as accurate a statement today as it was 100 years ago.

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.

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