The fiscal deadlines are coming
Ezra Klein's Wonkbook
Karl Singer is writing Wonkbook this week while Ezra is on vacation.
RCP Obama vs. Romney: Obama +1.8%; 7-day change: Obama +0.7%.
RCP Obama approval: 47.5%; 7-day change: +0.6%.
Top story: The fiscal deadlines are coming
Congressional leaders are nearing a deal to avoid an October government shutdown. “House and Senate leaders are nearing a temporary spending deal that would keep the federal government running for the first half of the next fiscal year, which will begin in October, aides in both parties said Monday, an effort to avoid the specter of a messy government shutdown fight on the eve of the November election. The agreement could be announced by House Speaker John A. Boehner (R-Ohio) as soon as Tuesday, aides said…Under the deal, agency spending for the first half of the year would rise at a pace that would not exceed a $1.047 trillion limit that both parties agreed to in last summer's debt deal, a senior House aide said. That level represents a significant concession by conservatives, who had wanted to cut spending much more deeply.” Rosalind Helderman in The Washington Post.
But Congress won’t vote on it until after recess. “Congressional leaders will not move this week on a stopgap measure to extend government funding for six months, leaving lawmakers a narrow window in September to avert a government shutdown before the election. Republicans and Democrats have been discussing a funding bill in recent days, but aides said Monday it would not be unveiled before lawmakers head out of town for a five-week recess at the end of the week…Aides say appropriators are waiting for technical budget data from the administration and Congressional Budget Office that is coming in August to write the spending measure.” Russell Berman and Erik Wasson in The Hill.
@morningmoneyben: So Congress can pass nonsense non-starter tax cut bills but can’t take threat of shutdown off the economy’s back
@pourmecoffee: Congress about to leave on recess. If you need a problem ignored or worsened you’ll have to wait 5 weeks till they return.
The election is making compromise on the fiscal cliff less likely. “Growing fears over next year's automatic spending cuts and looming tax increases are migrating from the cloistered corridors of Congress to the campaign trail, pushing the parties deeper into their trenches and making a stalemate-driven economic setback ever more likely. In Senate campaigns from Montana to Virginia and House campaigns in military-heavy districts, candidates are making the ‘fiscal cliff’ a new line of attack. And as they do, the prospects for compromise appear to be receding…Senate Democrats last week muscled through legislation extending tax cuts for the middle class while allowing tax breaks for the rich to lapse. That, they said, was their answer to defusing the fiscal time bomb set to blow in January. House Republicans will answer Wednesday with legislation extending all the Bush-era tax cuts. From there, nothing is expected to happen until after the election.” Jonathan Weisman in The New York Times.
Everything you need to know about the fiscal cliff in one post: http://wapo.st/Q58Ryn.
The fiscal cliff may trigger tens of thousands of layoff notices right before the election. “The deep federal spending cuts scheduled to take effect at the start of next year may trigger dismissal notices for tens of thousands of employees of government contractors, companies and analysts say, and the warnings may start going out at a particularly sensitive time: Days before the presidential election. By law, all but the smallest companies must notify their workforce at least 60 days in advance when they know of specific job cuts that are likely to happen. Obama administration officials say that the threat of layoffs is overblown and that Republicans are playing up the possibility rather than trying to head it off. The Labor Department said Monday that it would be ‘inappropriate’ for contractors to send out large-scale dismissal notices, because it is unclear whether the federal cuts will occur and how they would be carried out.” Zachary Goldfarb in The Washington Post.
PONNURU: Republicans will best Democrats in the tax fight. “If Republicans sweep the election, none of this will come to pass. They would extend all the tax cuts, probably by simple-majority votes. If President Barack Obama wins re- election and Republicans take the Senate, Congress will extend all the cuts and dare the president to veto it. Republicans will then blame high middle-class taxes on Obama and look forward to the 2014 elections. Democrats would respond by blaming the higher taxes on Republican intransigence about upper-income tax cuts. In most polls, voters side with Democrats over Republicans on that. Even so, Democrats would lose the blame game. Voters usually praise or blame the president, not Congress, for almost anything. They think of Democrats, not Republicans, as the party that is most enthusiastic about tax increases.” Ramesh Ponnuru in Bloomberg.
1) BLINDER: The British have an intriguing plan to encourage lending. “The Bank of England is about to launch a creative ‘Funding for Lending Scheme’ to boost bank lending. Importing this British product to America would require some adaptations to the U.S. system, plus cooperation from the Treasury and maybe even from Congress…But it’s worth some careful thought..For a 25-basis-point annual fee, the Bank of England will soon start lending banks Treasury bills for terms up to four years. The banks can then turn around and use these bills as collateral to borrow at exceptionally low rates in the private markets; after all, T-bills are the ultimate collateral. The key point is that the plan gives banks an incentive to increase lending at the margin…If it tried to create such a lending facility, the Federal Reserve would encounter some legal handicaps that do not exist in the U.K. But it’s surely worth investing some lawyers’ time to see if we can create an American version of the British program. It just might work.” Alan Blinder in The Wall Street Journal.
2) BAKER: Exiting the euro could be good for Greece. “The period of transition will cause enormous economic disruption and pain, but once the new currency is in place, Greece’s economy can return to a healthy growth path. In the case of Argentina, another country that defaulted and broke the supposedly unbreakable tie of its currency with the dollar, the transition period was less than six months. It defaulted in December 2001 and was on a robust growth path by the summer of 2002. It had regained all the ground lost due to the financial crisis by the summer of 2003 and continued to have solid growth until the worldwide economic crisis in 2008. There are reasons why Greece’s economy can be expected to perform either better or worse than Argentina’s did a decade ago.” Dean Baker in The Guardian.
3) CARTER AND MILLER: The EPA should suspend its renewable fuel standards. “By suspending renewable-fuel standards that were unwise from the start, the Environmental Protection Agency could divert vast amounts of corn from inefficient ethanol production back into the food chain, where market forces and common sense dictate it should go…Brazil, another large ethanol producer, uses sugar instead of corn to make ethanol. It has flexible policies that allow the market to determine whether sugar should be sold on the sugar market or be converted to fuel. Our government could learn from the Brazilian approach and direct the E.P.A. to waive a portion of the renewable-fuel standards, thereby directing corn back to the marketplace. Under the law, the E.P.A. would first have to determine that the program was causing economic harm. That's a no-brainer, given the effects of sharply higher grain prices that are already rippling through the economy.” Colin Carter and Henry Miller in The New York Times.
4) TETT: Money market funds are the Achilles heel of America’s financial system. “While the markets are distracted by Libor, an intense fight is bubbling, largely ignored, about one weak link in the system – America's vast money market funds. And while it may not be producing the same fireworks as Libor, investors should watch this battle, since it could have big implications for the wider financial world…The SEC, for its part, is pushing two reform ideas: it wants the funds to hold cash reserves, to absorb losses, and to operate with floating net asset values, to educate investors that these investments cannot be treated like a bank account…Despite the dull-as-ditchwater reputation, the sector has an Achilles heel: unlike bank accounts, money market funds are not covered by any deposit insurance, and investors can redeem their money at will.” Gillian Tett in The Financial Times.
5) FRIEDMAN AND GANESH: Unorthodox central bank actions are undermining lending. “The unintended consequences of financial policy intervention are providing fresh evidence for chaos theory's idea that the flap of a butterfly's wings can spark a tornado on the other side of the world…The bottom line is that the very actions central banks and regulators have been taking to increase confidence in the banking sector might be undermining banks' ability to lend. Although central bank actions have lowered longer term borrowing costs, this has not spurred credit demand. Businesses and households are either so frightened or so overleveraged that they're saving and cutting debt, no matter how cheap it is to borrow.” Alexander Friedman and Kiran Ganesh in Bloomberg.
Alt-country interlude: Brandi Carlile plays “That Year” live at Lightning 100.
Got tips, additions, or comments? E-mail me.
Still to come:Taxpayers would benefit from debt forgiveness; here come the rebates; a judge is blocked; the one-year farm bill may not happen; and a goat goes all out on her bouncing.
Some Fed officials are pushing preemptive stimulus. “Some Federal Reserve officials are reviving an idea that rose and fell with Alan Greenspan, the former Fed chairman, as they seek to persuade colleagues to take new action to stimulate growth. Central bankers generally set policy based on their judgment about the most likely path for the nation's economy. But Mr. Greenspan argued that the Fed sometimes should do more than its forecast suggested, buttressing the economy against large, potential risks. He described such moves as ‘taking out insurance.’…Officials, including the Fed's vice chairwoman, Janet L. Yellen, have sought to reinforce the case for action by arguing that the Fed also should seek to offset the looming risk that a European turndown will set off a global financial crisis, or that a failure to dismantle the potential year-end fiscal cliff of government spending cuts and tax increases will tip the economy back into recession.” Binyamin Appelbaum in The New York Times.
Taxpayers could benefit if the FHFA OKs debt forgiveness. “As the regulator for Fannie Mae and Freddie Mac nears its decision on whether to approve debt forgiveness for troubled borrowers, a new analysis by the regulator suggests that taxpayers could actually benefit from the move, according to people briefed on the findings. Fannie and Freddie could save about $3.6 billion more than current loss-mitigation approaches by reducing balances for some borrowers that owe much more than their homes are worth, these people said. The Federal Housing Finance Agency is nearing a decision on whether to allow the companies to participate in the debt-forgiveness program that it consistently has resisted. Until now, the regulator has maintained that the current housing-rescue programs offered by the taxpayer-supported mortgage companies are less-expensive options” Nick Timiraos in The Wall Street Journal.
The trickle of Libor lawsuits is about to become a deluge. “Lawsuits are mounting against some of the world's biggest banks over the ma-nipu-la-tion of the global interest rate known as Libor as smaller lenders, municipalities and investors take stock of losses tied to the widening scandal. The cases are believed to be a trickle before an oncoming deluge of civil litigation that will beset the world's largest banks for years. Yet the ultimate problem for the accused may not be the millions they pay in damages but rather the cloud of uncertainty looming over their business. Already there is talk of the government stepping in to oversee a global settlement, just as it did in the mortgage robo-signing scandal. But it took years for regulators to reach a nationwide mortgage settlement. And that settlement involved the cooperation only of states, not countries, which means the banking industry could be mired in legal action for a while.” Danielle Douglas in The Washington Post.
A UK review of Libor will consider scrapping the current system. “Libor, the London Interbank Offered Rate, could be scrapped altogether and replaced with an interest rate that is set using actual trades, according to a review set up by the UK government. Ministers on Monday announced the remit for Martin Wheatley to investigate the Libor benchmark rate, which has been heavily criticised after it emerged that Barclays and several other leading banks manipulated it…The terms of reference for the Wheatley review include considering whether the rate should be set based on transactions made by traders, rather than the estimate of the rate at which their banks are borrowing at any given time.” Kiran Stacey and Caroline Binham in The Financial Times.
Greece will seek an extension of its bailout. “The leaders of Greece’s ruling coalition, struggling to reach consensus over an austerity plan, will seek an extension of the country’s bailout program, a senior government official said, hoping to spread cuts of EUR11.5 billion ($14.17 billion) over a longer period even as international creditors have signaled such a demand wouldn’t be acceptable. Prime Minister Antonis Samaras, Socialist leader Evangelos Venizelos and the leader of the small Democratic Left party, Fotis Kouvelis, met for more than two hours Monday but didn’t reach a final agreement on spending cuts Greece must enforce as part a EUR173 billion bailout plan. The plan may already be off track after two election campaigns brought economic overhauls to a standstill…The senior government official said Greece would push for a two-year extension to meet fiscal targets set out in its second bailout as it works toward finalizing the fresh austerity measures.” Stelios Bouras and Philip Pangalos in The Wall Street Journal.
Life lessons interlude: Bill Nye teaches Chris Hardwick how to tie a bowtie.
Insurers are sending out rebates. “The law requires insurers to give out annual rebates by Aug. 1, starting this year, if less than 80 percent of the premium dollars they collect go toward medical care. For insurers covering large employers, the threshold is 85 percent. As a result, insurers will pay out $1.1 billion this year, according to the Department of Health and Human Services, although not all of it will go to individuals. The average rebate will be $151 per household, with the highest average amounts in Vermont ($807 per family), Alaska ($622) and Alabama ($518). No rebates will be issued in New Mexico or Rhode Island, because all the insurers in those states met the 80/20 requirement. Although the percentage of insurance companies that owe rebates this year is relatively small, about 14 percent, many giants of the industry are on the list. They include Aetna, Cigna, Humana and UnitedHealthcare.” Abby Goodnough in The New York Times.
And they want to use tax reform to repeal some Obamacare taxes. “With GOP repeal efforts stalled out this year, health insurers are eyeing an expected effort to overhaul the nation's Tax Code next year as their best shot to get rid of a tax they'll have to pay under President Barack Obama's health care law. Lobbyists for the health insurance industry are calling on lawmakers to make repeal of the ‘health insurance tax’ a priority during those discussions, arguing that a rewrite of the Tax Code is the best time to re-examine the tax that is expected to help pay for health care reform.” Matt Dobias in Politico.
@waltershapiroPD: On the 47th anniversary of Medicare, isn’t it time to start calling it LBJ-care?
The Senate GOP blocked a vote on a judicial nomination. “Senate Republicans blocked a vote on the nomination of Robert Bacharach to be a U.S. circuit judge for the Tenth Circuit court in Oklahoma on Monday because they said it violated an election-year practice. The 56-34-3 vote came despite previously-stated support of Bacharach from the Oklahoma Republican Sens. Tom Coburn and James Inhofe. They chose not to vote against what their party leadership urged, instead they voted present. Sixty votes were needed to clear the proceedural hurdle…Republicans said ahead of time that they'd block the nomination because of the Thurmond-Leahy Rule — a past Senate practice not to approve judicial nominations so close to a presidential election since a possible new president would want to make their own appointments.” Ramsey Cox in The Hill.
Goats are uproarious interlude: All this goat wants to do is bounce.
House Republicans may drop the farm bill extension and vote on disaster aid. “Leaders of the House and Senate Agriculture Committees are slated to meet Tuesday morning amid signs that House Republicans may pull back from a one-year extension of farm programs and focus instead on the immediate needs of drought-stricken livestock producers. The extension — due on the House floor Wednesday — remains highly divisive even as there is broad support for new disaster aid to fill gaps in the current farm law for livestock and some specialty crops. No final decisions have been made. But Minnesota Rep. Collin Peterson, the ranking Democrat on the House Agriculture Committee, appears open to this approach.” David Rogers in Politico.
Senators will try to tack energy efficiency legislation to every Senate bill. “Sen. Jeanne Shaheen (D-N.H.) will try to tack her energy efficiency legislation onto every Senate bill called on the floor for the rest of session, she told The Hill on Monday. The bill, S. 1000, is co-sponsored by Sen. Rob Portman (R-Ohio). It passed the Senate Committee on Energy and Natural Resources by an 18-3 vote in July and has the backing of Chairman Jeff Bingaman (D-N.M.) and ranking member Lisa Murkowski (R-Alaska). Shaheen on Monday filed the bill as an amendment to Sen. Joe Lieberman’s (I-Conn.) Cybersecurity Act.” Zack Colman in The Hill.
Meat producers want the renewable fuel standard waived. “The US livestock and poultry industry urged federal regulators to suspend a government mandate for ethanol use for the first time as a severe drought lifts the price of corn feed. A coalition of beef, pork, chicken and dairy producers said the US Renewable Fuel Standard – which requires billions of gallons of corn-based ethanol to be blended with motor fuel – should be waived ‘in whole or in substantial part’ for 12 months…The EPA, which the ethanol mandate, is empowered to rule on a waiver.” Gregory Meyer in The Financial Times.
@Amy_NJ: Sanders v Inhofe debate on Senate floor reminds me of a pet peeve: Use of word “belief” in global warming coverage. It’s not a religion.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.