News: Time to worry about the debt limit ... again — Biden targets monopolies

Friday, July 9, 2021

Time to worry about the debt limit ... again — Biden targets monopolies — Wall Street dips on econ fears

Jul 09, 2021

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Quick fix

Time to worry about the debt limit again — The federal government runs out of borrowing room under the debt limit on July 31. After that, the Treasury Department will have "extraordinary measures" at its disposal to avoid catastrophic default for a couple of months. Theoretically, Democrats should be able to get a debt limit hike included with a bipartisan infrastructure bill or unilaterally through the budget reconciliation process.

But right now neither of those paths seem at all clear. And Congress is only around for a few weeks before the August recess. And the big problem is that the "X date" by which Treasury will run out of room to avoid a debt breach seems especially unknowable this year due to the impact of the Covid-19 pandemic on the economy.

Via our Caitlin Emma: "After the federal government's debt waiver expires on July 30, the default date will remain 'particularly unpredictable,' complicating negotiations on Capitol Hill to prevent an economically devastating lapse, the Bipartisan Policy Center said

"'The challenges of accurately forecasting the pandemic's lingering effects on the economy and the ongoing federal response mean we may not have a clear picture until September, at which point Congress could have just weeks to act,' said Shai Akabas, the center's economic policy director. The think tank, which is known for predicting the debt limit's "X Date," said it still can't narrow its estimate to a time frame more specific than 'fall 2021.'"

Real talk — There's almost no way a Democrat-controlled Congress would allow a catastrophic default under a Democratic president. But there could be some uneasy days for markets later this month if no clear plan is in place when the August recess looms.

And if Democrats want to tuck a debt limit hike into a bi-partisan infrastructure deal it could create some blow-back from Republicans. And if they want to do it through reconciliation it could further complicate the delicate dance with moderate Democrats. At some point soon a clear message from Democrats on how they plan to handle the always pesky debt limit would be useful.

GOOD FRIDAY MORNING — Happy weekend all! 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

This afternoon, President Biden "will deliver remarks and sign an executive order on promoting competition in the American economy in the State Dining Room" before heading to Delaware for the weekend … Treasury Secretary Janet Yellen will attend meetings at the G20 Finance Ministers and Central Bank Governors meeting in Venice, Italy

SPEAKIG OF THE G20 — Former Treasury Secretary Larry Summers will be in Venice as well "setting out recommendations for how to finance future pandemic preparedness. Summers, along with former finance ministers Ngozi Okonjo-Iweala and Tharman Shanmugaratnam are co-chairs of the High Level Independent Panel – commissioned by the G20 earlier this year to come up with a set of actionable solutions. … You can read the report here when it's out later today

A NEW SHOT IN THE ARM ― Via our Lorraine Woellert: The International Monetary Fund's executive board approved a massive increase in reserve assets to aid the global recovery from the coronavirus pandemic. The $650 billion in new special drawing rights is the largest increase in the fund's history. IMF Managing Director Kristalina Georgieva called it "a shot in the arm for the world."

BIDEN SET TO TAKE ON MONOPOLIES — Our Leah Nylen: "The White House is scheduled to issue an executive order Friday to promote competition throughout the U.S. economy in the most ambitious effort in generations to reduce the stranglehold of monopolies and concentrated markets in major industries.

"The order — whose details POLITICO first reported last week — marks a major push by … Biden's administration to focus on competition as part of the economic recovery from the pandemic. It also offers a response to progressives' criticisms that the federal government has focused too much on supporting banks and other corporations without concern about the effect on consumers, who have watched their choices dwindle over the years."

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Markets

WALL STREET ENDS LOWER — Reuters' Stephen Culp: "Wall Street closed lower on Thursday, retreating from record closing highs in a broad sell-off driven by uncertainties surrounding the pace of the U.S. economic recovery. As the bond market rallied on a flight to safety, all three major U.S. stock indexes turned sharply lower, with economically sensitive transports down the most."

EARNINGS BOOM EXPECTED A YEAR AFTER PANDEMIC-DRIVEN SKID — AP's Alex Veiga: "Wall Street is gearing up for a slew of blockbuster earnings over the next few weeks as companies issue their results for the April-June quarter. The heightened expectations reflect companies' improving fortunes this year versus the second quarter of 2020, when much of the economy ground to a halt under restrictions aimed on stemming the spread of the coronavirus.

"Second-quarter earnings by S&P 500 companies are projected to be up 63.6 percent from a year earlier, according to FactSet. That would be the highest annual growth rate since the fourth quarter of 2009, when earnings by companies in the benchmark index soared 108.9 percent."

POST-FED TAPER TANTRUM? STRATEGISTS SAY NOT THIS TIME — Reuters' Divya Chowdhury: "Global markets won't have a violent 'taper-tantrum' like they did in 2013 even as though U.S. Federal Reserve is expected to discuss tapering of asset purchases at its annual gathering at Jackson Hole in August, three strategists at asset management firms said. The Fed's scaling back — or 'tapering' — of its quantitative easing programme in 2013 had triggered a market panic when bond yields rocketed higher and stock prices dropped."

BOND MARKET TELLS US TO WORRY ABOUT GROWTH, NOT INFLATION — NYT's Neil Irwin: "For months, the United States has been experiencing the growing pains of an economy rebooting itself — surging economic activity, yes, but also shortages, gummed-up supply networks and higher prices. Now, shifts in financial markets point to a reversal of that economic narrative. Specifically, the bond market has swung in ways that suggest that a period of slower growth and more subdued inflation could lie ahead."

Fly Around

PCAOB OVERHAULED AFTER SEC REPORT CITES YEARS OF DYSFUNCTION — WSJ's Jean Eaglesham and Dave Michaels: "No bickering in public. No leaks to the press. Above all, be collegial. That was the message the head of the Securities and Exchange Commission gave to the newly named board of an audit-industry watchdog in 2018, according to people familiar with the private meeting.

"Three years later, the entire board was ousted. Its chairman, who heard the news while attending his daughter's college graduation, is under SEC investigation, people familiar with the matter said. An official report criticized the board's feuding members for 'bad communications and bad chemistry.'"

BUSINESS GROUPS, UNIONS TEAM UP ON INFRASTRUCTURE PLAN — AP's Kevin Freking and Lisa Mascaro: "Major business and union groups have formed a new coalition designed to add momentum for a $1.2 trillion infrastructure package that the Senate is expected to take up this month.

"The U.S. Chamber of Commerce and the AFL-CIO, along with trade groups representing manufacturers and retailers, announced the coalition Thursday. The group's formation comes as a bipartisan group of senators tries to craft a bill from a blueprint that aims to dramatically boost public works spending over the next five years."

CONSUMER BORROWING SURGED IN MAY — Bloomberg's Reade Pickert: "U.S. consumer credit surged in May by the most on record, reflecting a jump in non-revolving loans that underscores solid household spending. Total credit climbed $35.3 billion from the prior month after an upwardly revised $20 billion gain in April, Federal Reserve figures showed Thursday. On an annualized basis, borrowing rose 10 percent in May. Economists in a Bloomberg survey had called for a $18 billion gain."

GREAT INFLATION REDUX? ECONOMISTS POINT TO BIG DIFFERENCES — NYT's Jeanna Smialek and Ben Casselman: "The last time big government spending, supply chain shocks and rising wages threatened to keep inflation meaningfully higher, President Biden's top economic adviser was in diapers.

"Jump forward half a century, and some aspects of 2021 look a little bit like a do-over of the late 1960s and the 1970s, which many economists think laid the groundwork for the breakaway inflation that took hold and lasted into the 1980s. At a time when prices have popped and debate rages over how quickly they will moderate, those comparisons have become a hot topic."

ECB AIMS FOR SLIGHTLY HIGHER INFLATION, BUT STOPS SHORT OF FED'S MAJOR SHIFT — WSJ's Tom Fairless: "The European Central Bank unveiled a new policy framework that will likely keep its easy-money policies in place for longer and will aim to take account of housing prices as the eurozone emerges from the Covid-19 recession, but it stopped short of the major policy shift announced by the Federal Reserve last year.

"The changes, the ECB's first in nearly two decades, aim to give policy makers a broader tool kit to navigate deep shifts in the global economy, including the failure of ultralow interest rates to push inflation higher."

TRANSITIONS — Nelson Mills is joining VC Lux Capital as a venture associate focusing on investment in healthcare technology and deep tech. He most recently was an investor with Global Founders Capital where he invested in WOMBO, Breach Insurance, and Goodcover.

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