Fed Chair Powell will testify at 10 AM EST before the Senate Banking Committee. His testimony will be posted here at 9:45 AM. Watch the hearing live here. I will forward a transcript as soon as it becomes available. More in this morning’s Wall Street Journal preview.
President Trump is in Hanoi to meet tomorrow with North Korea’s Kim. Hanoi is 12 hours ahead of EST.
“Trump says he expects to sign a trade deal with China ‘fairly soon.’” Last night’s Washington Post article led with:
President Trump stoked expectations Monday for a successful conclusion to U.S.-China trade talks, saying he anticipated signing an agreement with Chinese President Xi Jinping “fairly soon.” [White House transcript]
Speaking to a gathering of the nation’s governors at the White House, Trump was optimistic about closing the remaining gaps over U.S. demands for major changes in China’s state-led economic system.
“We’re going to have another summit. We’re going to have a signing summit, which is even better,” the president said, referring to plans he announced Sunday to host the Chinese leader at his Mar-a-Lago estate in Florida next month. “So hopefully, we can get that completed. But we’re getting very, very close. . . . I think it’s going to happen, and it could happen fairly soon.”
Trump spoke as investors digested his cancellation one day earlier of a scheduled increase in tariffs on $200 billion in Chinese goods to give negotiators more time to strike a deal. The import levies were slated to rise to 25 percent on Saturday from 10 percent, a move that would have significantly increased the trade war’s economic costs.
“Too Much Cash, Too Little Time: The Latest U.S. Debt Cap Dilemma.” Yesterday afternoon’s Bloomberg article stated in its entirety:
Uncle Sam has to find a way to shovel more than $100 billion in cash out the door by the end of this week.
That’s when the U.S. Treasury has to reduce its cash balance to about $199 billion in order to comply with rules surrounding the reinstatement of the debt ceiling. The cap is set to go back into effect at the end of this Friday and at that point the cash balance should be at or below the level it was at when the current suspension went into effect in February 2018.
The Treasury’s cash hoard ended last week at around $312 billion, leaving around $113 billion to reach its target. The repayment of a $50 billion cash-management bill that matures this Friday will take care of some of the gap, but that still leaves some $63 billion to be reduced by other means.
Tax refunds are one way that the government can typically whittle down its cash pile at this time of year, but they’ve been running at a sluggish pace. The total amount of refund payouts through Feb. 15 was down roughly 39 percent from the same period last year, Internal Revenue Service data showed.
The daily pattern of tax refunds has deviated “sharply” from recent years, and while the gap may close somewhat in the days ahead, “there is a lot of uncertainty” over the issue, according to a note Monday from Wrightson ICAP economist Lou Crandall. “That, unfortunately, leaves us very much in the dark about the Treasury’s financing needs between now and the debt ceiling reset date this Friday.”
Crandall had expected some clarity on the outlook for tax refunds last week, since the number of refunds issued and the average refund check both peaked around the same time in 2017 and 2018. Last week, he estimated that the pace of refunds could peak on Feb. 20 and Feb. 21. But the cash balance only fell by less than $20 billion over those two days.
If refunds in the coming days aren’t big enough to close the gap, the Treasury might have to do some accounting gymnastics to hit its target. That could take the form of an additional cash-management bill.
And that may just be the start of the government’s headaches over the debt ceiling. Once the limit comes back into effect, Treasury Secretary Steven Mnuchin will likely resort — as he has in the past — to a series of extraordinary funding measures to keep the cash spigot open for as long as possible.
That could keep the government paying its bills until around August, according to some analysts’ estimates, although exactly when the money might run out is anyone’s guess.
See this December 20, 2018 Congressional Research Service report for more on the debt limit.
OMB Acting Director says OCO will be used to get around the spending caps. Yesterday, in this Real Clear Politics op-ed, Office of Management and Budget Acting Director Russ Vought decried “unsustainable” borrowing and stated:
Congress has enacted three consecutive deals to raise these spending caps. The last one increased spending levels for fiscal years 2018 and 2019 by nearly $300 billion, pouring money into wasteful programs that we know don’t work. In each of these deals, Democrats in Congress held defense spending increases hostage for increases in domestic spending. We should expect more of the same from Democrats this year.
In the coming weeks, the president will send his third budget to Capitol Hill. Once again, it will present a clear road map for a more fiscally responsible future — if Congress chooses to follow it. This budget will reflect the administration’s continued commitment to defending our nation and addressing threats to our national security, such as terrorists abroad and criminal illegal aliens running through our southern border. Making America safe and secure is the administration’s top priority and the president’s budget will reflect that.
However, the budget will provide these investments while adhering to the spending caps already set in law. Additional needed defense resources will be designated as Overseas Contingency Operations (OCO) funds, which are not subject to the spending caps.
Fiscal conservatives may feel uncomfortable using OCO in this way. Yet, as long as Congressional Democrats insist on demanding more social spending in exchange for continuing to fund defense spending, expanding the use of OCO funds remains the administration’s only fiscally responsible option in meeting national security needs while avoiding yet another increase to the spending caps.
President Trump’s FY20 Budget will get nowhere in the House and not very far in the Senate. He’s not going to get a defense appropriation until a deal is reach on non-defense appropriations. If that deal can’t be reached, we’ll be in for another round of continuing resolutions. That would create many problems, particularly for the Defense Department, like those noted in this 2017 Bipartisan Policy Center blog.
CBO: “Final Sequestration Report for Fiscal Year 2019.” Yesterday’s 4-page Congressional Budget Office report stated:
In CBO’s estimation, a sequestration will not be required for 2019. However, the authority to determine whether
a sequestration is required and, if so, exactly how to make the necessary cuts in budget authority, rests with the administration’s Office of Management and Budget (OMB). Those determinations are based on OMB’s own estimates of federal spending.
OMB hasn’t issued its FY19 report yet. It would be posted here when it does. President Trump’s FY20 Budget is expect on March 11th.
At some point this spring, Congress will have to raise the FY20 caps by at least $219 b. just to accommodate FY19 spending levels. The House will probably pass a budget resolution with such increases, but the Senate seems unlikely to pass a budget resolution. In that case, at some point, a deeming resolution would set spending levels for appropriations bills, or, failing that, continuing resolutions would ensue by September 30th.
GAO: “LARGE BANK SUPERVISION: OCC Could Better Address Risk of Regulatory Capture.” It’s not often that any federal governmental body levels the charge of “regulatory capture” on another, despite abundant examples, but that’s what happened in yesterday’s 71-page Government Accountability Office report, which stated:
OCC supervises over 1,300 financial institutions, with assets under supervision totaling $12 trillion. Weakness in supervision by federal regulators was among many factors that contributed to the 2007–2009 financial crisis, and some analyses have identified regulatory capture as one potential cause. Regulatory capture refers to a regulator acting in the interest of the regulated industry rather than in the public interest.
Eleven U.S. examples of regulatory capture are cited in this Wikipedia article. See also this review of a 2014 book, PREVENTING REGULATORY CAPTURE: Special Interest Influence and How to Limit It, by Daniel Carpenter and David A. Moss, eds.
