Wall Street is getting worried about the debt-ceiling debate in Washington, The Wall Street Journal reported yesterday. Bond traders, concerned about protracted sparring over the federal government’s borrowing limit, are pushing up the yields on short-term Treasurys. The three-month yield now pays more than a note whose term is twice as long. It’s a rare “inversion” that hasn’t happened in this corner of the market since the throes of the financial crisis. A brief default on government debt would hit short-term T-bills first, so they’ve typically turned volatile ahead of deadlines in Washington for lifting the government’s cap on borrowing. But the magnitude and timing of the moves — well before October, the Congressional Budget Office’s estimated deadline for a deal — suggest that investors are on edge about what’s to come. To be sure, analysts say that yields in the $1.7 trillion T-bill market can become jumbled up for reasons besides a debt debacle, such as when the Federal Reserve is in a cycle of lifting rates, as is currently taking place. When rates are rising, pushing up short-term yields relative to their longer-term counterparts, they are already more disposed to become inverted. But this is the first time these yields have inverted on a closing basis since the central bank began lifting rates in late 2015.
In August 2012, the federal government abruptly changed the terms of the bailout provided to Fannie Mae and Freddie Mac, The New York Times reported on Sunday. Instead of continuing to receive payments on the taxpayer assistance, Treasury officials decided to begin seizing all the profits both companies generated every quarter. It was an unusual move, but it was necessary to protect taxpayers from likely future losses in their operations. Newly unsealed documents show that as early as December 2011, high-level Treasury officials knew that Fannie and Freddie would soon become profitable again. The materials also show that government officials involved in the decision to divert the profits knew the change would most likely generate more money for Treasury than the original rescue terms, which required the companies to pay taxpayers 10 percent annually on the bailout assistance they had received. The 17-page memo shows that the idea to extract all of Fannie’s and Freddie’s profits coincided with their anticipated turnaround. Another unsealed document, a draft memorandum circulated before the profit sweep, shows that federal officials recognized it would generate more money than the original bailout terms. Net income generated by Fannie and Freddie and paid to the government “will likely exceed the amount that would have been paid if the 10 percent was still in effect,” it stated.
Democrats got an early start slamming President Trump’s upcoming budget for expected cuts to social welfare programs, saying that it breaks his campaign promises to help working-class Americans, The Washington Times reported yesterday. The budget is expected to make good on Trump’s promises to boost Pentagon spending, slash non-defense spending and rein in the federal government. It also will seek to roll back some of the social welfare programs expanded during the Great Recession, shifting responsibility for many programs back to the states. That’s a nonstarter for Democrats. Budgets are basically political documents that are often deemed dead-on-arrival in Congress. They do outline White House priorities and serve a starting point for spending negotiations in Congress. Still, the early and strong opposition from Democrats, who succeeded in blocking Trump’s proposed cuts in the final spending bill of the current fiscal year, signaled the tough fight ahead.
President Donald Trump is sending Congress a $4.1 trillion spending plan that relies on faster economic growth and steep cuts in a range of support programs for low-income individuals to balance the government’s books over the next decade, the Associated Press reported today. The proposed budget, for the fiscal year that begins Oct. 1, was being delivered to Congress, setting off an extended debate in which Democrats are already attacking the administration for trying to balance the budget on the backs of the poor. The proposal projects that this year’s deficit will rise to $603 billion, up from the actual deficit of $585 billion last year, But the document says that if Trump’s initiatives are adopted the deficit will start declining and actually reach a small surplus of $16 billion in 2027. However, that goal depends on growth projections that many private economists view as overly optimistic. The government hasn’t run a surplus since the late 1990s when a budget deal between Democrat Bill Clinton and congressional Republicans combined with the longest U.S. economic recovery in history produced four years of black ink from 1998 to 2001. According to budget tables released by the administration, Trump’s plan cuts almost $3.6 trillion from an array of benefit programs, domestic agencies and war spending over the coming decade — an almost 8 percent cut — including repealing and replacing Obama’s health law, cutting Medicaid, eliminating student loan subsidies, sharply slashing food stamps, and cutting $95 billion in highway formula funding for the states. Trump’s plan projects that the boost in economic growth it will engender will result in more than $2 trillion in unspecified deficit savings over the coming decade from “economic feedback,” a major component in achieving the program’s pledge of achieving balance by 2027. The budget does feature one major new domestic initiative — offering paid parental leave at a projected cost of $25 billion over the next decade. Trump would keep campaign pledges to leave core Medicare and Social Security benefits for the elderly alone but that translated into even deeper cuts in programs for the poor such as Medicaid and food stamps.
Congress’s chief budget scorekeeper told senators that ferreting out government inefficiencies is a worthwhile goal, but tackling federal deficits in a meaningful way will require more than nibbling around the edges, The Washington Times reported yesterday. “Improving the efficiency of government is an important objective, but … given an aging population and rising health care costs, making a significant dent in federal deficits would require broader changes in federal tax or spending policies,” Keith Hall, director of the Congressional Budget Office (CBO), told members of the Senate Budget Committee. “To make such changes, lawmakers would have to increase revenues above amounts projected under current law, reduce spending for larger benefit programs such as social security [and] Medicare, or combine these approaches.” Gene Dodaro, comptroller general of the Government Accountability Office (GAO), said that since 2003, the cumulative amount of improper payments within programs like Medicare and Medicaid are in excess of $1.2 trillion, and the total is estimated to have topped $100 billion in each of the last three years. But even trying to get at fixing those problems is another matter. “For a number of years now, we identified a material weakness in our audits of the federal government’s financial statements on improper payments that the federal government really is not able to determine the extent of this problem across the government, or to have a reasonable prospect that it’s managing it properly to reduce these improper payments,” he said. The two men were testifying at a Senate Budget Committee hearing on how to make the federal government work more effectively and efficiently.
When the White House unveils President Donald Trump’s full budget plan next week, just one thing will be missing: the president, The Hill reported today. Trump is set to begin his first foreign trip as president on Friday, a journey that will take him to Saudi Arabia, Israel and Europe. It means he’ll be away from Washington when the Office of Management and Budget (OMB) releases his blueprint, which it is scheduled to do next week. In most years, the president takes part in the budget rollout, which is a political wish list of sorts, a document rich in importance that shows how the administration is seeking to move its agenda and keep its campaign promises. While the budget director usually does the heavy lifting at the document’s unveiling, the president often plays a central role in selling the policy. Things tend to work differently in the first year of an administration, and this year in particular the budget schedule has been off-kilter, in part because of the need to pass a spending bill for 2017 and avert a government shutdown in May. In Trump’s absence, OMB Director Mick Mulvaney will seek to keep the focus on the things he wants to highlight, such as spending cuts, tax reforms and plans to build a wall along the southern border. However, some outsiders say it’s best for presidents to have an arm’s-length distance from their own budgets.
