In March and April, Republicans and Democrats in Congress put aside their usual bickering and passed desperately needed stimulus bills to blunt the full effects of a stunning recession.
And... That was it.
Most economists and even most politicians agree the economy needs more stimulus. But Republicans and Democrats are back to their petty ways and now look like they may not pass anything before Election Day in November. That means no further help for families running out of money, no aid for states and cities that will be forced to lay off thousands, and no lifeline for businesses that can’t pay their bills.
Democrats passed a gigantic $3 trillion stimulus bill in May that would have been the largest stimulus bill in history, by far. Everybody knew the Republicans who control the Senate would never agree to that much spending. But the Senate still hasn’t passed its own bill, and this week a GOP “skinny” stimulus bill failed to pass.
President Trump hasn’t had much to say about Congress punting on the economy, which is odd because nobody would benefit more than Trump from a stimulus booster shot. Any other president up for reelection in two months would probably be jabbing, threatening and cajoling to get a deal done, lest voters feel Washington has forgotten them as they decide whom to vote for.
Trump has other things on his mind, needless to say. The new Bob Woodward book contains fresh revelation of Trump’s venality, including a deliberate effort to understate the risks of the coronavirus earlier this year, even as Trump knew it could be deadly. Trump’s campaign may be running short of money and unable to afford crucial ads in battleground states. There are myriad lesser scandals. Biden continues to lead Trump in the polls by more than Hillary Clinton did in 2016.
It may not be Trump’s fault that Congress can’t pass another stimulus bill. But the Republican Party Trump leads can’t even come up with its own bill or present a starting point for negotiations with Democrats. This is bad news for Trump and bad news for the economy. This week’s Trump-o-meter reads FAILING, which is the second-lowest score and a perfectly apt way to describe Washington these days.
You might look at the numbers on the economy and conclude maybe it’s healing quickly enough on its own, and doesn’t need another trillion or two from Congress. The unemployment rate fell from 10.2% in July to 8.4% in August, suggesting it would be back below 5% if it fell at the same pace for the next two months. Businesses are reopening where they can and consumer spending is holding up.
But there are several giant problems looming if no further stimulus is coming. First, states and cities will have to lay off masses of people, because they have to balance their budgets every year and can’t borrow to bridge themselves through tough years. That will push overall unemployment back up, not down.
Thousands of businesses have been hanging on because of federal aid that is now running out. Businesses such as storefronts, restaurants, gyms and travel-related services can’t pay the bills at half capacity forever. Many of them will close if the governments stops supporting them.
Eviction and foreclosure moratoriums in many cities last through the end of the year, but those don’t forgive payments—they only allow owners and renters to delay them. When the moratoriums end, some renters and owners will face a mountain of back payments they can’t possibly make.
And finally, banks are going to get stuck dealing with a surge of bad loans and defaults by corporate customers. Banks are in good shape and they’re not likely to collapse as they nearly did in 2008. But financial losses lead to tighter credit everywhere and depressed economic activity. That will undercut Federal Reserve measures that in a way are supposed to accomplish the opposite. The stock-market selloff that began in early September may be the pricing-in process accounting for a slower recovery without additional stimulus.
Some of these perverse developments won’t happen until after the November election. So Trump may not particularly care. But voters will see it coming, and blame Trump if they feel disaster lurks around the corner. Maybe that’s why Congressional Democrats are so boldly refusing to negotiate with Republicans, who have more to lose. The question is why Republicans are letting them get away with it.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: email@example.com. Encrypted communication available. Click here to get Rick’s stories by email.