October 24, 2013
Who needs Hollywood when we have D.C.?
Hollywood has a tradition of producing movies and television shows in which secret cabals, nefarious plots, shadowy dealmakers and outright backstabbing threaten leadership of the nation.
Usually a hero like Jack Bauer in “24” — i.e., Canada’s own Kiefer Sutherland — comes to the rescue.
Two of the more recent examples are the series House of Cards on Netflix and Scandal on ABC.
Are such shows fanciful? Almost indubitably.
Are they as beyond the pale as we’d like to imagine? Maybe not so much.
On Oct. 16, one day before the U.S. Treasury was scheduled to run out of money, a debt relief agreement was reached and signed into law by the Senate, House of Representatives and the President.
The U.S. has narrowly avoided defaulting on its bills, temporarily.
The Republican Party, retreating from its original demand to strip down the Patient Protection and Affordable Care Act, has been humbled.
The Democrats have “graciously” said that no one is the winner. They may be speaking truer words than they know.
What the President and the world need is a respite extending at least a year. What we have is a gap of only 60 days before the dominoes begin to line up again.
There are three target dates. A joint committee of the two parties has been charged with outlining proposals to reign in government spending. Its report is due in mid-December.
Congress has agreed to fund public expenditures until Jan. 15, 2014.
The debt ceiling will be lifted until early February next year.
The aforementioned joint committee will be headed by Senate Budget Chairwoman, Patty Murray (Democrat, Washington) and House Budget Chairman, Paul Ryan (Republican, Wisconsin).
The cuts to entitlement programs and Obamacare that the Republicans are likely to seek will be extensive.
The efforts of two previous bipartisan collaborations — Bowles-Simpson and the super-committee — eventually crashed into brick walls.
If nothing has been achieved by Dec. 15, then watch the movie Groundhog Day for insight on what to expect — a financial crisis set on a repeating loop. The character played by Bill Murray was fated to live the same events over and over again.
It may be no coincidence that the Feb. 7, 2014 date to end suspension of the debt ceiling will arrive only five days after Punxsutawney Phil checks out whether or not he can see his shadow.
First the money will run out; then the debt ceiling will clamp down.
Republican Senator John McCain of Arizona has called the 16 opening days of October one of the most “shameful” periods he has ever experienced in his many years of public service.
Offering a 180-degree different opinion, Republican Senator Ted Cruz of Texas has characterized his party’s response as another example of the Washington establishment being hidebound and out of touch.
The final agreement was drafted by two “senior hands” in the Senate, Majority Leader Harry Reid (Democrat from Nevada) and Minority Leader Mitch McConnell (Republican from Kentucky).
There is a construction connection in the latest political plot twist.
Included in the relief bill is a provision to set aside $2 billion in extra funding for the Olmsted Dam Lock in Paducah, Ky., to help regulate traffic flow along the Ohio River. Mr. McConnell has been a long-standing proponent of this project, located in his home state.
That does sound a lot like politicians conducting business “as per usual”.
The most pertinent question is whether or not “old guard” Republicans can regain control of their party. They’ll have public outrage over the cost of what has just happened to bolster their fight.
Furloughs and layoffs were the tip of the iceberg. According to estimates, output lost may have reached as much as $20 billion, shaving nearly a full percentage point from the fourth-quarter gross domestic product (GDP) growth rate.
Three hard-core conservative groups — FreedomWorks, Club for Growth and Heritage Action — are already targeting “soft” Republicans. They are warning GOP members who voted with the Democrats in Congress that that they’re about to receive failing grades on their report cards.
This may prove fatal for sitting members when they face Tea Party opponents in “primary” fights leading up to the next mid-term and presidential elections in 2014 and 2016 respectively.
One mystery particularly relevant for our industry has been cleared up. We now know why U.S. business owners, sitting on piles of cash earned from hefty profits, have been reluctant to commit money to capital investments since the recession.
Construction of new plants, offices and other facilities has been seriously lagging the improvement in the economy overall.
As just proven, the future has been — and, unfortunately, may continue to be - too uncertain.
Sitting comfortably in North America, we’ve spent the last couple of years watching debt-ridden Europe stagger from one critical deadline to the next.
The threshold of debt to annual GDP at which the world-wide investment community clued in that Greece, followed by Ireland, Italy, Portugal and Spain, was headed for the rocks was about 150%.
The independent Congressional Budget Office (CBO) has estimated that the current level of U.S. debt held by the public is about 73% of GDP.
There’s great relief that the U.S. “chose” to reject default at this time. But the tight schedule of upcoming target dates will present many opportunities for backtracking.
In true Tinseltown fashion, what we really have as of Oct. 16 is a cliffhanger ending.