Biden allies push back on reconciliation price tag

From: POLITICO's Morning Money - Thursday Sep 09,2021 12:03 pm

Sep 09, 2021

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Quick fix

Biden allies push back on $3.5 trillion spending price tag — Allies of President Biden are starting to make the case that saying the proposed reconciliation budget package costs $3.5 trillion is not fair or consistent with past practice. That giant number thrills progressives but repels Senate moderates like Joe Manchin (D-W.Va.), who has suggested he would only support a significantly lower topline number.

Per a Biden ally: “It's false to characterize the reconciliation as a $3.5 trillion spending plan on multiple accounts. … The bill includes hundreds of billions of dollars in tax cuts for individuals, families, and businesses — not just spending.

“The bill would lower taxes for working families through the extension of the expanded Child Tax Credit in the [American Rescue Plan], which would also dramatically reduce child poverty. The bill also includes tax cuts for workers without children and for Americans who get health care coverage through the ACA exchanges. …

“Characterizing the package as $3.5 trillion also doesn't account for the bill’s offsets, and the bill will be fully paid for over the long-run. … In fact, according to the Center on Budget and Policy Priorities, if President Trump’s 2017 tax cut had been assessed in the same manner used to arrive at the $3.5 trillion figure, it would have been characterized as a package of more than $5 trillion. But no one talked about that legislation this way.”

Yellen warns of October debt limit deadline — Treasury Secretary Janet Yellen pushed the so-called X-date when the U.S. will run out of option to stave off default into October, per our Jennifer Scholtes and Caitlin Emma:

“In a letter to top lawmakers in both parties, Yellen said the Biden administration’s ‘best and most recent’ calculations suggest that the United States will run out of cash ‘during the month of October.’ If Congress continues to push off action on the debt limit over the next few weeks, she warned, the uncertainty alone could hurt financial markets. ….

“Yellen cautioned that ‘a delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the U.S. economy and global financial markets.’”

And yet… House Speaker Nancy Pelosi says she is still unwilling to put a debt limit hike into the reconciliation package and wants a bipartisan vote for an increase instead. Pelosi also would not commit to trying to get a debt limit hike into any emergency spending bill to keep the government open past Sept. 30.

None of this makes much sense . Republicans have little incentive to avoid any economic havoc that could be unleashed by a debt limit scare. In fact, they’d likely benefit from it in the midterms. Dems are poised to unilaterally spend massive sums of money so worrying about being saddled with political criticism for also unilaterally lifting the borrowing limit seems … absurd.

GOOD THURSDAY MORNING — Email me on bwhite@politico.com and follow me on Twitter @ morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver.

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Driving the Day

Jobless claims at 8:30 a.m. expected to dip to 335K from 340K … Yellen will attend a G-7 Finance Ministers virtual meeting and will preside over a meeting of the Financial Stability Oversight Council (Council) via videoconference.

More on Peak Delta : Pantheon’s Ian Shepherdson: “[C]ases appear to have been peaking before the holiday … Cases have been falling for some time in Missouri and Arkansas, where the Delta wave first took hold, in early June, and they are dropping too in many of the second group of states to be hit, including Florida, Georgia, Louisiana and Mississippi.

“Cases have peaked in Texas, Alabama, and Oklahoma. The pattern in all these states is remarkably similar, with cases rising slowly at first, then exploding, then peaking after six-to-eight weeks.”

STRANGEST RECOVERY … EVER — FWDBONDS’ Chris Rupkey: “Record jobs available at the end of July at 10.934 million swamp the number of jobless Americans in the country and make this the strangest recovery from any recession we have ever experienced in our career as an economist”

IDA'S NORTHEAST FLOOD INSURANCE HIT MAY REACH $8B — Our Zachary Warmbrodt: “Property analytics firm CoreLogic said … that insured flood losses for Northeast communities hit by the remnants of Hurricane Ida will likely be between $5 billion and $8 billion, putting new financial pressure on the National Flood Insurance Program. The estimate comes after CoreLogic estimated last week that insured flood damage along the Gulf Coast will be between $6 billion to $9 billion.”

Markets

STOCKS SLIP AS FED REPORT SIGNALS ‘DOWNSHIFT’ IN ECONOMY — AP’s Damian J. Troise and Alex Veiga: “Stocks on Wall Street eased further from their recent highs Wednesday amid more signs that U.S. economic growth is being dampened by a resurgence in coronavirus cases and other challenges. The S&P 500 slipped 0.1 percent, its third straight drop.

"The benchmark S&P 500 was roughly split between gainers and losers, but weakness in technology, communication and financial stocks weighed down the market. Less risky investments, including consumer staples and utilities, made broad gains.”

ICYMI: DIGITAL CURRENCIES PAVE WAY FOR DEEPLY NEGATIVE INTEREST RATES — WSJ’s James Mackintosh: “Investors have been ignoring progress toward government-issued electronic money, even as many countries are progressing rapidly toward their own online cash.

"They should ask two questions: Will the Federal Reserve issue a digital dollar? And will it eventually replace physical bank notes? I think the answer to both questions is yes, and those who agree should be assessing the impact on future monetary policy already, because dramatic change is likely within the timespan of the 30-year Treasury.”

Fly Around

DEMS’ SPLIT DEEPENS OVER POWELL FED REAPPOINTMENT — WSJ’s Nick Timiraos: “A centrist Democrat on the Senate Banking Committee said President Biden should nominate Federal Reserve Chairman Jerome Powell to a second term, the latest volley in an intraparty rift over the future leadership of the Fed.

“Montana Sen. Jon Tester said in an interview Wednesday that he was concerned by recent calls from progressive House Democrats to replace Mr. Powell with someone who would focus the Fed on advancing liberal political priorities, including climate change. Mr. Tester said he worried doing that would harm the economy by politicizing the central bank.”

CENTRIST DEMOCRAT BACKS POWELL FOR SECOND TERM AT FED — Bloomberg’s Steven T. Dennis: “A senior Democrat on the Senate Banking Committee endorsed Federal Reserve Chairman Jerome Powell for another term, countering pressure from some House progressives for President Joe Biden to pick a nominee more in line with their positions on regulation, inequality and climate risks.

“‘As our economy continues to recover from one of the greatest economic crises in our history, we need a steady hand at the wheel — and Chairman Powell has been just that,’ Senator Jon Tester of Montana said Wednesday.”

ECONOMY ‘DOWNSHIFTED SLIGHTLY’ IN AUGUST — Reuters’ Howard Schneider and Ann Saphir: “The U.S. economy ‘downshifted slightly’ in August as the renewed surge of the coronavirus hit dining, travel and tourism, the Federal Reserve reported Wednesday, but the economy overall remained in the throes of a post-pandemic rush of rising prices, labor shortages and stilted hiring.

“’The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions,’ the Fed reported in its latest Beige Book compendium of anecdotal information about the economy.”

YELLEN WARNS OF POSSIBLE OCTOBER DEFAULT ON DEBT SWOLLEN BY PANDEMIC — NYT’s Alan Rappeport and Jonathan Weisman: “The United States could default on its debt sometime in October if Congress does not take action to raise or suspend the debt limit, Treasury Secretary Janet L. Yellen warned on Wednesday.

"The ‘extraordinary measures’ that the Treasury Department has been employing to finance the government on a temporary basis since Aug. 1 will be exhausted next month, Ms. Yellen said in a letter to lawmakers. She added that the exact timing remained unclear but that time to avert an economic catastrophe was running out.”

And her team is rejecting debt prioritization on borrowing limit — Bloomberg’s Saleha Mohsin: “Treasury Secretary Janet Yellen’s team doesn’t see prioritizing payments to creditors as an option should the U.S. government exhaust its traditional measures to avoid a default induced by the debt limit, the department said Thursday.

"The U.S. ‘pays all its bills on time,’ said Treasury spokeswoman Lily Adams. ‘The only way for the government to address the debt ceiling is for Congress to raise or suspend the limit, just as they’ve done dozens of times before.’”

OCC PROPOSES REMOVAL OF UPDATED FAIR LENDING REGULATIONS — Reuters’ Pete Schroeder: “The U.S. Office of the Comptroller of the Currency on Wednesday proposed rescinding recently updated fair lending rules, as the agency begins work on drafting a new, unified regulation with other bank watchdogs. Under the proposal, the OCC would go back to the previous 1995 regulations for the Community Reinvestment Act (CRA), a 1977 fair lending law.”

TRANSITIONS — Per our Zachary Warmbrodt: “Andreessen Horowitz hires Quintenz — Venture capital firm Andreessen Horowitz has recruited former CFTC Commissioner Brian Quintenz as an advisory partner on its crypto team. Quintenz, a Republican, stepped down from the agency in August. Andreessen Horowitz general partner Katie Haun said Quintenz will “help in our work of translating crypto for the policy community, and translating policy for the crypto community.”

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